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Q. Am I required to sign any agreement"the broker or sub-broker?

A. Yes Forpurposeengaging-broker to execute tradesyour behalftime to timefurnish details relating to yourself for enablingbroker to maintain client registration form you have to signMember - Client agreement if youdealing directly"a broker In case youdealing through-sub-broker then you have to sign-Broker - Sub broker - Client Tripartite Agreement Model Tripartite Agreement between Broker-Sub brokerClients is applicable only forcash segment The Model Agreement has to be executedthe non-judicial stamp paper The Agreement contains clauses definingrightsresponsibilityClient vis--vis broker sub broker The documents prescribedmodel formats The stock exchangesstock broker may incorporate any additional clauses"these documents provided thesenot"conflict"anythe clauses"the model documentas alsoRulesRegulationsArticlesByelawscircularsdirectivesguidelines

Q. Can-retail investor also bid"a book-built issue?

A. Yes He can bid"a book-built issue for-value not more than Rs1,00,000 Any bid made"excessthis will be considered"the HNI category

Q. Can I apply forIPO online?

A. As percyber rulesGovernmentIndiathis facility is not provided Only"casebook building issues,brokers can bid onlinebehalfsubscribers

Q. Can I changerevise my bid?

A. Yes The investor can change or revisequantity or price"the bid usingform for changingrevisingbid that is available along"the application form However,entire processchangingrevisingbids shall be completed withindateclosurethe issue

Q. Can I knownumbershares that would be allotted to me?

A. In casefixed price issues,investor is intimated aboutCANRefund order within 30 daysthe closurethe issue In casebook built issues,basisallotment is finalized byBook Running lead Managers within 2 weeks fromdateclosurethe issue The registrar then ensures thatdemat credit or refund as applicable is completed within 15 daysthe closurethe issue The listingthe stock exchanges is done within 7 days fromfinalizationthe issue

Q. Does it mean that SEBI recommendsissue?

A. SEBI does not recommend any issue nor does take any responsibility either forfinancial soundnessany scheme orproject for whichissue is proposed to be made or forcorrectnessthe statements made or opinions expressed"the offer document

Q. Does SEBI approvecontentsthe issue?

A. It is to be distinctly understood that submissionoffer document to SEBI should not"any way be deemed or construed thatsame has been cleared or approved by SEBI The Lead manager certifies thatdisclosures made"the offer documentgenerally adequateare"conformity"SEBI guidelines for disclosuresinvestor protection"force fortime being This requirement is to facilitate investors to takeinformed decision for making investment"the proposed issue

Q. Does SEBI tag make my money safe?

A. For-public issueyou can knowstatus by callingregistrar (you will know aboutregistrarthe Highlights Pagethe issue) after 30 to 40 days fromclosing datethe issue However,"a book building issueyou can knowstatus by callingregistrar after 20 days fromclosing date

Q. Does SEBI tag make my money safe?

A. The investors should makeinformed decision purely by themselves basedthe contents disclosed"the offer documents SEBI does not associate itself"any issueissuershould"no way be construed as-guarantee forfunds thatinvestor proposes to invest throughissue However,investorsgenerally advised to study allmaterial facts pertaining toissue includingrisk factors before considering any investment Theystrongly warned against any tips or news through unofficial means

Q. Having applied forIPO how can I know my allotment status?

A. For-public issueyou can knowstatus by callingregistrar (you will know aboutregistrarthe Highlights Pagethe issue) after 30 to 40 days fromclosing datethe issue However,"a book building issueyou can knowstatus by callingregistrar after 20 days fromclosing date

Q. HowNet Interest Margins (NIMs) calculated?

A. Net Interest Margin isrationet interest income to average interest-earning assets

NIM = Net Interest Income

Avg Interest Earning Assets

WhereNet interest income isdifference between interest incomeinterest expense

And Average Interest-earning assetsloans advances given to borrowers by banks NBFCs Averagethe beginning to endthe period is considered for prudent calculation

Eg If Interest income = Rs 150 crore

Interest expense = Rs 80 crore

Interest-earning assets (at beginningyear) = Rs 2,000 crore

Interest-earning assets (at endyear) = Rs 2,500 crore

NIM = (150 80)

(2000 + 2500) 2

NIM = 70

2,250

NIM = 311

Source sptulsiancom

Q. How do I interpretIPO Grades?

A. The gradesallocated on-5-point scale,lowest being Grade 1highest Grade 5The meaningthese grades have been explained under Question 1"this FAQ

Q. How do I know if I am allottedshares And bytimeframe will I get-refund if I am not allotted?

A. The investor is entitled to receive-Confirmatory Allotment Note (CAN)"case he has been allotted shares within 15 days fromdateclosurea book Built issue The registrar has to ensure thatdemat credit or refund as applicable is completed within 15 daysthe closurethe book built issue

Q. How do I know ifbroker or sub broker is registered?

A. You can confirm it by verifyingregistration certificate issued by SEBI A brokers registration number begins"the letters "INB"thata sub broker"the letters INS" Forbrokersderivatives segment,registration number begins"the letters INF There is no sub-broker"the derivatives segment

Q. How do I know whether my order is placed?

A. The Stock Exchanges assign-Unique Order Code Number to each transaction,is intimated by broker to his clientonceorder is executedthis order code number is printedthe contract note The broker member has also to maintainrecordtime whenclient has placed orderreflectsame"the contract note along"the timeexecutionthe order

Q. How do I place my orders"the broker or sub broker?

A. You can either go tobrokers sub brokers office or placeorder overphone internet or as defined"the Model Agreement given above

Q. How does Book Building work?

A. Book building is-processprice discovery Hence,Red Herring prospectus does not contain-price Instead,red herring prospectus contains eitherfloor pricethe securities offered through it or-price band along"the range within whichbids can move The applicants bid forshares quotingpricethe quantity that they would like to bid at Onlyretail investors haveoptionbidding at cut-off Afterbidding process is complete,cut-off price is arrived atthe linesDutch auction The basisAllotment (Refer Q 15j) is then finalizedletters allotmentrefund is undertaken The final prospectus"alldetails includingfinal issue pricethe issue size is filed"ROCthus completingissue process

Q. How does one come to know aboutissuesoffer Andwhere can I get copiesthe draft offer document?

A. SEBI issues press releases every week regardingdraft offer documents receivedobservations issued duringperiod The draft offer documentsput upthe website under ReportsDocuments section The final offer documents thatfiled"SEBIROCalso putfor information undersame section Copiesthe draft offer documents"hard copy form may be obtained fromofficeSEBIMittal CourtA wingGround Floor224Nariman PointMumbai 400021 on-paymentRs100 orSESLMs etc The soft copies can be downloaded fromSEBI website under ReportsDocuments section Some LMs also make it availabletheir web sites for download The final offer documents thatfiled"SEBIROC can also be downloaded fromsame sectionthe website

Q. How does SEBI ensure compliance"DisclosuresInvestor protection?

A. The Merchant Banker arespecialized intermediaries whorequired to do due diligenceensure that allrequirementsDIPcomplied"while submittingdraft offer document to SEBI Any non compliancetheir partattract penal actionSEBI,"termsSEBI (Merchant Bankers) Regulations The draft offer document filed by Merchant Banker is also placedthe website for public comments OfficialsSEBI at various levels examinecompliance"DIP guidelinesensure that all necessary material information is disclosed"the draft offer documents

Q. How is NIM differentSpread?

A. NIM = (Interest Income - Interest Expense) Interest earning assets

Spread,the other handisdifference between yieldcostborrowing,"yield isinterest income earnedinterest earning assetscostborrowing is interest expense chargedinterest bearing liabilities

Spread = (Interest Income Interest earning assets) (Interest Expense Interest bearing Liabilities)

Eg If Interest income = Rs 150 crore

Interest expense = Rs 80 crore

Interest earning assets = Rs 2,250 crore

Interest bearing liabilities = Rs 3,000 crore

NIM = (150 80) 2250

= 311

Spread = (150 2,250) (80 3,000)

= 4

Source sptulsiancom

Q. How isRetail Investor defined as?

A. Retail individual investor meansinvestor who applies or bids for securitiesor for-valuenot more than Rs2,00,000

Q. How long it takes to receive my money for-sale transactionmy shares for-buy transaction?

A. Brokers were required to make payment or give delivery within two working daysthe pay - out day Howeveras settlement cycle has been reduced fromT+3 rolling settlement to T+2 wef April 012003,pay outfundssecurities toclients bybroker will be within 24 hoursthe payout

Q. How long will it take afterissue forshares to get listed?

A. The listingthe stock exchanges is done within 7 days fromfinalizationthe issue Ideallyit would be around 3 weeks afterclosurethe book built issue In casefixed price issueit would be around 37 days after closurethe issue

Q. How many days isissue open?

A. As per Clause 881Subscription list for public issues shall be kept open for at least 3 working daysnot more than 10 working days In caseBook built issues,minimummaximum period forbidding will be open is 37 working days extendable by 3 days"casea revision"the price band The public issue made byinfrastructure companysatisfyingrequirements"Clause 241 (iii)Chapter II may be kept open for-maximum period21 working days As per clause 882Rights issues shall be kept open for at least 30 daysnot more than 60 days

Q. Howword Promoter has been defined?

A. The promoter has been defined as-person or persons who are"over-all controlthe companywhoinstrumental"the formulationa plan or programme pursuant to whichsecuritiesoffered topublicthose named"the prospectus as promoters(s) It may be noted that-director officerthe issuer company or personif theyacting as such merely"their professional capacitynot be included"the definitiona promoter Promoter Group includespromoter,immediate relativethe promoter (ie any spousethat personor any parentbrothersister or childtheperson orthe spouse) In case promoter is-company,-subsidiary or holding companythat company any company"whichpromoter holds 10 or morethe equity capital orholds 10 or morethe equity capitalthe Promoter any company"which-groupindividuals or companies or combinations thereof who holds 20 or morethe equity capital"that company also holds 20 or morethe equity capitalthe issuer company

In casepromoter isindividualany company"which 10 or morethe share capital is held bypromoter orimmediate relativethe promoter or-firm or HUF"whichPromoter or any one or morehis immediate relative is-member any company"which-company specified"(i) aboveholds 10 or more,the share capital any HUF or firm"whichaggregate sharethe promoterhis immediate relatives is equal to or more than 10the total,all persons whose shareholding is aggregated forpurposedisclosing"the prospectus "shareholdingthe promoter group"

Q. In casepurchaseshareswhen do I make payment tobroker?

A. The payment forshares purchased is required to be done prior topay"date forrelevant settlement or as otherwise provided"the RulesRegulationsthe Exchange

Q. In casesaleshareswhen shouldshares be given tobroker?

A. The deliveryshares has to be done prior topay"date forrelevant settlement or as otherwise provided"the RulesRegulationsthe Exchangeagreed"the brokersub broker"writing

Q. Is grading optional?

A. NoIPO grading is not optional A companyhas fileddraft offer document for its IPO"SEBI,or after 1st May2007is required to obtain-grade forIPOat least one CRA

Q. Is it compulsory for me to fill upregistration form?

A. Yes Filling upform is necessary if you want to view more details aboutIPOs as well as our investment perceptionsanalysis

Q. Is it compulsory for me to have-Demat Account?

A. As perrequirementallpublic issuessize"excessRs10 crore,to made compulsorily"the demat more Thusifinvestor chooses to apply forissue that is being made"a compulsory demat modehe has to have-demat accounthasresponsibility to putcorrect DP IDClient ID details"the bidapplication forms

Q. Is it possible to enter bids less than floor price?

A. No The system automatically rejectsbids if price is less than floor price

Q. Isissue price for placement portionnet offer to publicsame?

A. Yes

Q. Is there any preference while doingallotment?

A. The allotment toQualified Institutional Buyers (QIBs) is on-discretionary basis The discretion is left toMerchant Bankers who first discloseparametersjudgment"the Red Herring Prospectus Thereno objective conditions stipulated as perDIP Guidelines The Merchant Bankersfree to set their criteriamentionsame"the Red Herring Prospectus

Q. Is there any provision"I can get faster deliveryshares"my account?

A. The investorsclients can get direct deliveryshares"their beneficial owner accounts To avail this facilityyou have to give detailsyour beneficial owner accountthe DP-IDyour DP to your broker along"the Standing Instructions for Delivery-In to your Depository Participant for accepting shares"your beneficial owner account Givendetails,Clearing CorporationClearing House shall send pay out instructions todepositories so that you receive pay outsecurities directly into your beneficial owner account

Q. WhatBonus Shares?

A. Bonus sharesshares issued bycompanies to their shareholders freecost by capitalizationaccumulated reserves fromprofits earned"the earlier years

Q. WhatCRRSLR"respect to banks?

A. CRR or cash reserve ratio isminimum proportion percentagea banks deposits to be held"the formcash Banks actually dont holdas cash"themselves,depositsame"RBI currency chests,is considered equivalent to holding cash"themselves

When-banks deposits increase by Rs 100 crore,consideringpresent cash reserve ratio6bank will have to hold additional Rs 6 crore"RBIwill be able to use only Rs 94 crore for investmentslending ThereforehigherCRRloweramount that banks can lend Thus RBI can controlliquidity by changingCRR ie increase CRR to reducelendable amountvice-versa

SLR or statutory liquidity ratio isminimum percentagedeposits that-bank has to maintain"formgoldcash or other approved securities It isratioliquid assets (cashapproved securities) todemandterm liabilities deposits

RBI is empowered to increase this ratioto 40 An increase"SLR restrictsbanks leverage position to pump more money intoeconomythereby regulating credit growth

Source sptulsiancom

Q. WhatCumulative Convertible Preference Shares?

A. Cumulative Convertible Preference Share are-typepreference shares wheredividend payablethe same accumulates if not paid After-specified date,shares will be converted into equity capitalthe company

Q. WhatCumulative Preference Shares?

A. Cumulative Preference Shares are-typepreference shareswhich dividend accumulates if remains unpaid All arrears preference dividend have to be paid out before paying dividendequity shares

Q. WhatDisclosuresInvestor protection guidelines?

A. The primary issuancesgoverned by SEBI"termsSEBI (DisclosuresInvestor protection) guidelines SEBI framed its DIP guidelines"1992 Many amendments have been carried out"the same"line"the market dynamicsrequirements In 2000SEBI issued SecuritiesExchange BoardIndia (DisclosureInvestor Protection) Guidelines2000is compilationall circulars organized"chapter forms These guidelinesamendments thereonissued by SEBI India under section 11the SecuritiesExchange BoardIndia Act1992 SEBI (Disclosureinvestor protection) guidelines 2000 are"short called DIP guidelines It provides-comprehensive framework for issuances buycompanies

Q. WhatDVR shares?

A. WhatDVR shares 29 May 2012 at 1100 am DVR or differential voting rights shareslike ordinary equity shares but"differential voting rights Shares can have higher or lower voting rights as compared toordinary equity shares HoweverIndian regulations do not permit companies to issue equity shares"higher voting rights HenceIndian DVR shares provide for lower voting rights as compared to ordinary equity shares

Companies issue DVRs for several reasons such as preventiona hostile takeoverbringing"a passive strategic investor or dilutionvoting rights DVR investorsgenerally compensated"a higher dividend rate This makesDVRs attractive for retail investors who do not want control"the company,are looking atlong-term growth prospects

DVR shareslistedthe stock exchangesare traded"the same manner as ordinary equity shares,they mostly trade at-discountsometimes as high as 30due to fewer voting rights

Tata MotorsGujarat NRE CokePantaloon RetailJain Irrigationsomethe Indian companies that have issued DVR shares

Eg Tata Motors DVR shares carry voting rightsare one-tenththe ordinary equity shares The DVR shareholdersentitled toadditional 5 dividendoveraboveordinary equity shareholders Tata Motors DVRtrading at 800 or 36 discount toordinary shares,are at trading at Rs 1,245 (as23rd November 2010)

Source sptulsiancom

Q. Whatequity shares?

A. An equity sharecommonly referred to as ordinary share also representsformfractional or part ownership"which- shareholderas-fractional ownerundertakesmaximum entrepreneurial risk associated"a business venture The holderssuch sharesmembersthe companyhave voting rights

Q. WhatLegalother information?

A. Outstanding litigationsmaterial developmentslitigations involvingcompanyits subsidiariespromotersgroup companiesdisclosed Also material developments sincelast balance sheet dategovernment approvalslicensing arrangementsinvestment approvals (FIPBRBI etc)all governmentother approvalstechnical approvalsindebtednessetcdisclosed

Q. WhatParticipating Preference Shares?

A. Participating Preference Sharesshares whererightcertain preference shareholders to participate"profits after -specified fixed dividend contracted for is paid is given Participation right is linked"the quantumdividend paid the equity shares overabove-particular specified level

Q. Whatpreferece shares?

A. Preference sharesshares"whichownersthe sharesentitled to-fixed dividend or dividend calculated at- fixed rate to be paid regularly before dividend can be paid"respectequity share They also enjoy priority over equity shareholders"paymentsurplus But"the eventliquidationtheir claims rank belowclaimsthe companys creditorsbondholders debenture holders In short they get preference over equity shareholders"case paymentdividends on"casewinding upthe company

Q. WhatRisk Factors?

A. Here,issuers management gives its viewthe Internalexternal risks faced bycompany Here,company also makes-notethe forward-looking statements This information is disclosed"the initial pagesthe documentit is also clearly disclosed"the abridged prospectus It is generally advised thatinvestors should go through allrisk factorsthe company before makinginvestment decision

Q. What arecharges that can be leviedthe investor by-stock broker?

A. The trading member can charge

1 Brokerage charged by member broker
2 Penalties arisingspecific defaultbehalfclient (investor)
3 Service tax as stipulated
4 Securities Transaction Tax (STT) as applicable

The brokerageservice taxSTTindicated separately"the contract note

Q. What aredosdonts for bidding applying"the issue?

A. The investorsgenerally advised to study allmaterial facts pertaining toissue includingrisk factors before considering any investment Theystrongly warned against any tips or relyingnews obtained through unofficial means

Q. What areprescribed pay-inpay-out days for fundssecurities for Normal Settlement?

A. The pay-inpay-out days for fundssecuritiesprescribed as perSettlement Cycle A typical Settlement CycleNormal Settlement is given below

Activity Day
Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days
Delivery Generation T+1 working days

Settlement SecuritiesFunds pay" T+2 working days
SecuritiesFunds pay out T+2 working days

Post Settlement Valuation Debit T+2 working days
Auction T+3 working days
Bad Delivery Reporting T+4 working days
Auction settlement T+5 working days
Close out T+5 working days
Rectified bad delivery pay-inpay-outT+6 working days
Re-bad delivery reportingpickup T+8 working days
Close outre-bad delivery T+9 working days

Note The above is-typical settlement cycle for normal (regular) market segment The days prescribed forabove activities may change"casefactors like holidaysbank closing etc You may refer to scheduled datespay-inpay-out notified byExchange for each settlementtime-to-time

Q. What arerelevant regulationswhere do I find them?

A. The SEBI Manual is SEBI authorized publication that is-comprehensive databankall relevant ActsRulesRegulationsGuidelines thatrelated tofunctioningthe Board The details pertaining toActsRulesRegulationsGuidelinesCircularsplacedthe SEBI website underLegal Framework section The periodic updatesuploaded ontoSEBI website regularly

Q. What detailsrequired to be mentionedthe Contract note issued byStock Broker?

A. A broker has to issue-contract note to clients for all transactions"the form specified bystock exchange The contract note inter-alia should have following

NameaddressSEBI Registration numberthe Member broker
Namepartner proprietor Authorised Signatory
Dealing Office AddressTel NoFax noCode numberthe member given byExchange
Unique Identification Number
Contract numberdateissuecontract notesettlement numbertime period for settlement
Constituent (Client) nameCode Number
Order numberorder time corresponding totrades
Trade numberTrade time
QuantityKindSecurity broughtsold byclient
BrokeragePurchase Sale rategiven separately
Service tax ratesany other charges levied bybroker
Securities Transaction Tax (STT) as applicable
Appropriate stamps have to be affixedthe original contract note or it is mentioned thatconsolidated stamp duty is paid
Signaturethe Stock brokerAuthorized Signatory

Contract note provides forrecourse tosystemarbitrators for settlementdisputes arising outtransactions Onlybroker can issue contract notes

Q. What documents should be obtainedbrokerexecutiontrade?

A. You have to ensure receiptthe following documents for any trade executedthe Exchange

a Contract note"Form A to be given within stipulated time

b Incaseelectronic issuancecontract notes bybrokers,clients shall ensure thatsame is digitally signed and"caseinability to viewsameshall communicatesame tobrokerupon whichbroker shall ensure thatphysical contract note reachesclient withinstipulated time

It iscontract note that gives rise to contractual rightsobligationspartiesthe trade Henceyou should insistcontract notestock broker

Q. What does ISIN stand for wrt securities?

A. ISIN stands for International Securities Identification Number (ISIN) It isinternational numbering system setbyInternational Organization for Standardization (ISO) to number specific securitiessuch as stocks (equitypreference shares)bondsoptionsfutures

ISIN contains 12 characters"total,compriseboth alphabetsnumbers The first two digits stand forcountry codenext nine digits areunique identification number forsecurity whilelast digit is-check digit to prevent errors

Eg ISIN for State BankIndia (SBI) is INE062A01012

Source sptulsiancom

Q. What does one mean by Lock-in?

A. Lock-in indicates-freezethe shares SEBI (DIP) Guidelines have stipulated lock-in requirementssharespromoters mainly to ensure thatpromoters or main persons whocontrollingcompanyshall continue to hold some minimum percentage"the company afterpublic issue

Q. What does Open Interest mean?

A. Open Interest istotal numberoutstanding contracts held by market participants atendthe day Alternativelyit istotal numberfutures contracts that have not yet been exercised (squared off) or expired

Open interest indicatestrend"the FO marketmeasuresflowmoney intofutures market The open interest position representsincrease or decrease"the numbercontracts for-day,it is shown as-positive or negative number

CalculationOpen Interest
Each trade completedthe exchange hasimpact uponlevelopen interest for that day There-three possibilities -


1One new buyerone new seller (both parties initiating-new position) - open interest will increase by one contract
2One old buyerone old seller (both partiesclosingexistingold position) - open interest will decline by one contract
3One old buyerone new buyer (old trader passing off his position to-new trader) - open interest remains unchanged

Increasing open interest means that new money is flowing intomarketplace The result will be continuationpresent trend (updown or sideways)

Declining open interest means that market is liquidatingimplies prevailing price trend is coming toend

Source sptulsiancom

Q. What does Secondary Market mean?

A. Secondary Market refers to-market"securitiestraded after being initially offered topublic"the primary market viaIPO andor listedthe Stock Exchange Majoritythe trading is done"the secondary market Secondary market comprisesequity marketsthe debt markets

Forgeneral investor,secondary market providesefficient platform for tradinghis securities For managementthe companySecondary equity markets serve as-monitoringcontrol conduitby facilitating value-enhancing control activitiesenabling implementationincentive-based management contracts,aggregating information (via price discovery) that guides management decisions

Q. What does InMoneyOutMoneyAtMoney mean,"respect to Call Option?

A. What does InMoneyOutMoneyAtMoney mean,"respect to Call Option 19 Jun 2012 at 1100 am A Call Option is said to be InMoney if its strike price is less thancurrent stock price"the cash segmentthe market ExercisingInMoney Call Option will lead to profit foroption holder

Call Option is AtMoney if its strike price is equal to pricethe underlying ie current stock price"the cash segmentthe market ExercisingAtMoney Call Option will lead to no profit no loss situation foroption holder

Call Option is said to be Outthe Money if its strike price is more thancurrent stock price"the cash segmentthe market Option holder must not exerciseOutthe Money Call Option as it will lead to loss

Eg If share priceABC Ltd is Rs 100"the cash market,-call option will strike price90 is InMoney call optionwhereas-call option"strike price110 is OutMoney call optioncall option"strike price 100 is AtMoney Call option

Source sptulsiancom

Q. What does pari passu mean?

A. Pari passu is-Latin term commonly used"legal documents meaning equal"all respects or insame degree or proportion

For exampleif issuenew shares is said to rank pari passu"the existing sharesthenrights associated"bothexisting as well asnew sharesexactlysame

Source sptulsiancom

Q. What does price discovery through book building process mean?

A. Book Building means-process undertaken by which-demand forsecurities proposed to be issued by-body corporate is elicitedbuilt upthe price forsecurities is assessedthe basisthe bids obtained forquantumsecurities offered for subscription byissuer This method providesopportunity tomarket to discover price for securities

Q. What happens if I do not get my money or sharethe due date?

A. In case-broker fails to deliversecurities or make paymenttimeor if you have complaint against conductthe stock brokeryou can file-complaint"the respective stock exchange The exchange is required to resolve allcomplaints To resolvedispute,complainant can also resort to arbitration as providedthe reversecontract note purchase or sale note Howeverifcomplaint is not addressed byStock Exchanges or is unduly delayedthencomplaints along"supporting documents may be forwarded to SEBI Your complaint would be followed up"the exchanges for expeditious redressal

In casecomplaint against-sub broker,complaint may be forwarded toconcerned broker"whomsub broker is affiliated for redressal

Q. What happens ifsharesnot bought"the auction?

A. Ifshares could not be bought"the auction ie if sharesnot offered for sale"the auction,transactionsclosed out as per SEBI guidelines

The guidelines stipulate that the close out Price will behighest price recorded"that scripthe exchange"the settlement"whichconcerned contract was entered intoup todateauctionclose out OR 20 aboveofficial closing pricethe exchangethe daywhich auction offerscalled for (and"the eventthere being no such closing pricethat daythenofficial closing pricethe immediately preceding trading daywhich there wasofficial closing price)whichever is higher

Since,"the rolling settlementauctionthe close out takes place during trading hours,reference price"the rolling settlement for close out procedures would be taken asprevious days closing price

Q. What is-Capital Market?

A. Capital market is-market for buyingsellinglong-term debtequity shares In this market,capital funds comprisingboth equitydebtissuedtraded This also includes private placement sourcesdebtequity as well as organized markets like stock exchanges Capital market can be further divided into primarysecondary markets

Q. What is-Cut Off Price?

A. In Book building issue,issuer is required to indicate eitherprice band or-floor price"the red herring prospectus The actual discovered issue price can be any price"the price band or any price abovefloor price This issue price is called Cut off price This is decided byissuerLM after consideringbookinvestors appetite forstock SEBI (DIP) guidelines permit only retail individual investors to haveoptionapplying at cut off price

Q. What is-draft prospectus?

A. A draft prospectus providesinformationthe financialsthe companypromotersbackgroundtentative issue price etc It is filed byLead Managers"the Securities Exchange BoardIndia (SEBI) to provide issue details Overviewthe draft prospectus can be seenwwwsebigovin (SEBIs web site) The final prospectus is printed after obtainingclearanceSEBIthe RegistrarCompanies (ROC)

Q. What is-Financial Statements?

A. Financial statementchanges"accounting policies"the last three yearsdifferences betweenaccounting policiesthe Indian Accounting Policies (ifCompany has presented its Financial Statements also as per Either US GAAPIASpresented

Q. What is-FollowPublic Offering?

A. A followpublic offering (FPO) is whenalready listed company makes either-fresh issuesecurities topublic oroffer for sale topublicthroughoffer document An offer for sale"such scenario is allowed only if it is made to satisfy listing or continuous listing obligations

Q. What is-Green-shoe Option?

A. Green Shoe option meansoptionallocating shares"excessthe shares included"the public issueoperating-post-listing price stabilizing mechanism for-period not exceeding 30 days"accordance"the provisionsChapter VIIIADIP Guidelines,is granted to-company to be exercised through-Stabilizing Agent This isarrangement whereinissue would be over allotted toextenta maximum15the issue size Frominvestors perspective,issue"green shoe option provides more probabilitygetting sharesalso that post listing price may show relatively more stability as compared to market

Q. What is-Money Market?

A. Money market is-market for debt securities that pay off"the short term usually less than one yearfor example market for 90-days treasury bills This market encompassestradingissuanceshort term non equity debt instruments including treasury billscommercial papersbankers acceptancecertificatesdepositsetc

Q. What is-Preferential Issue?

A. A preferential issue isissueshares orconvertible securities by listed companies to-select grouppersons under Section 81the Companies Act1956is neither-rights issue nor-public issue This is-faster way for-company to raise equity capital The issuer company has to comply"the Companies Actthe requirements contained"Chapter pertaining to preferential allotment"SEBI (DIP) guidelinesinter-alia include pricingdisclosures"notice etc

Q. What is-price band?

A. The red herring prospectus may contain eitherfloor price forsecurities or-price band within whichinvestors can bid The spread betweenfloorthe capthe price band shall not be more than 20 In other wordsit means thatcap should not be more than 120the floor price The price band can have-revisionsuch-revision"the price band shall be widely disseminated by informingstock exchangesby issuing press releasealso indicatingchangethe relevant websitethe terminalsthe syndicate members In caseprice band is revised,bidding period shall be extended for-further periodthree dayssubject tototal bidding period not exceeding thirteen days

Q. What is-Red Herring Prospectus?

A. Red Herring Prospectus is-prospectus,does not have detailseither price or numbershares being offeredoramountissue This means that"case price is not disclosed,numbersharesthe upperlower price bandsdisclosed Onother hand,issuer can stateissue sizethe numbersharesdetermined later An RHP forFPO can be filed"the RoC withoutprice bandthe issuer,"such-case will notifyfloor price or-price band by wayan advertisement one day prior toopeningthe issue Incasebook-built issuesit is-processprice discoverythe price cannot be determined untilbidding process is completed Hencesuch detailsnot shown"the Red Herring prospectus filed"ROC"termsthe provisionsthe Companies Act Onlycompletionthe bidding process,detailsthe final priceincluded"the offer document The offer document filed thereafter"ROC is called-prospectus

Q. What is-Rights Issue?

A. Rights Issue (RI) is when-listed companyproposes to issue fresh securities to its existing shareholders as on-record date The rightsnormally offered"a particular ratio tonumbersecurities held prior toissue This route is best suited for companies who would like to raise capital without diluting stakeits existing shareholders unless they do not intend to subscribe to their entitlements

Q. What is-Rolling Settlement?

A. In-Rolling Settlementtrades executed duringdaysettled basedthe net obligations forday

Presentlytrades pertaining torolling settlementsettled on-T+2 day basis"T stands fortrade day Hencetrades executed on-Mondaytypically settledthe following Wednesday (considering 2 working days fromtrade day)

The fundssecurities pay-inpay-outcarried outT+2 day

Q. What is-Call option?

A. Call option givesbuyerrightnotobligation to buy-given quantitythe underlying asset at-given priceor before-given future date

For eg Buying 1 call optionONGC 1250 30Dec2010 comprising 250 equity shares for Rs 80 per call will givebuyerright to buy 250 ONGC sharesor before 30th December 2010 at Rs 1,250 per shareirrespectivethe share price (in cash market) Since it is only-rightno obligation to buy,buyer can let this right lapse,will becase when ONGC share price is less than Rs 1,250"cash market Inabove caseloss is limited to Rs 80 whilegainsunlimited tobuyer

Rs 80 paid is termed as option premium orcostpurchasing 1 call option containingpre-determined quantitythe underlying

Selling-call option givessellerobligation to sell-given quantitythe underlying asset at-given priceor before-given future datewhenright is exercised bybuyer For-sellercall optionprofit is limited topremium earned while loss it unlimitedasbuyer can exercise his call option anytime tillexpirycontract

Source sptulsiancom

Q. What is-Put option?

A. Put option givesbuyerrightnotobligation to sell-given quantitythe underlying asset at-given priceor before-given future date

For eg Buying 1 put optionONGC 1250 30Dec2010 comprising 250 equity shares for Rs 15 per putwill givebuyerright to sell 250 ONGC sharesor before 30th December 2010 at Rs 1,250 per shareirrespectivethe share price (in cash market) Since it is only-rightno obligation to sell,buyer can let this right lapse,will becase when ONGC share price is more than Rs 1,250"cash market Inabove caseloss is limited to Rs 15 whilegainsunlimited tobuyer

Rs 15 paid is termed as option premium orcostpurchasing 1 put option containingpre-determined quantitythe underlying ie 250 ONGC equity shares

Selling-put option givessellerobligation to buy-given quantitythe underlying asset at-given priceor before-given future datewhenright is exercised bybuyer For-sellerput optionprofit is limited topremium earned while loss it unlimitedasbuyer can exercise his put option anytime tillexpirycontract

Source sptulsiancom

Q. What is About us?

A. This presents-reviewondetailsthe businessthe companybusiness strategycompetitive strengthsinsuranceindustry-regulation (if applicable)historycorporate structuremain objectssubsidiary detailsmanagementboarddirectorscompensationcorporate governancerelated party transactionsexchange ratescurrencypresentation dividend policymanagements discussionanalysisfinancial conditionresultsoperationsgiven

Q. What isAbridged Prospectus?

A. Abridged Prospectus meansmemorandum as prescribed"Form 2A under sub-section (3)section 56the Companies Act1956 It contains allsalient featuresa prospectus It accompaniesapplication formpublic issues

Q. What isAccount Period Settlement?

A. An account period settlement is-settlement wheretrades pertaining to-period stretching over more than one daysettled For exampletrades forperiod Monday to Fridaysettled together The obligations foraccount periodsettled on-net basis Account period settlement has been discontinued since January 12002pursuant to SEBI directives

Q. What isAuction?

A. The Exchange purchasesrequisite quantity"the Auction Marketgives them tobuying trading member The shortagesmet through auction processthe difference"price indicated"contract noteprice received through auction is paid by member toExchange,is then liable to be recovered fromclient

Q. What ise-IPO?

A. A company proposing to issue capital to public throughon-line systemthe stock exchange for offersecurities can do so if it complies"the requirements under Chapter 11ADIP Guidelines The appointmentvarious intermediaries byissuer includes-prerequisite that such membersregistrars haverequired facilities to accommodate suchonline issue process

Q. What isInitial Public Offering?

A. Initial Public Offering (IPO) is whenunlisted company makes either-fresh issuesecurities oroffer for saleits existing securities or both forfirst time topublic This paves way for listingtradingthe issuers securities

Q. What isIntroduction?

A. The introduction covers-summarythe industrybusinessthe issuer company,offering details"briefsummaryconsolidated financialoperatingother data General Information aboutcompany,merchant bankerstheir responsibilities,detailsbrokerssyndicate members toIssuecredit rating (in casedebt issue)debenture trustees (in casedebt issue)monitoring agencybook building process"briefdetailsunderwriting Agreementsgiven here Important detailscapital structureobjectsthe offeringfunds requirementfunding planscheduleimplementationfunds deployedsourcesfinancingfunds already deployedsourcesfinancing forbalance fund requirementinterim usefundsbasic termsissuebasis for issue pricetax benefitscovered

Q. What isIPO?

A. An Initial Public Offer (IPO) is-meanscollecting money frompublic by-company forfirst time"the market to fund its projects In return,company givesshare toinvestors"the company

Q. What is Arbitration?

A. Arbitration isalternative dispute resolution mechanism provided by-stock exchange for resolving disputes betweentrading memberstheir clients"respecttrades donethe exchange

Q. What is ASBA,"respect to IPOs?

A. ASBA stands for Application Supported by Blocked Amount The facility was introduced by SEBI"July 2008 to help retail investors apply"IPOsFPOsrights issuecompanies,"ease

Earlier while makingapplication"an IPO,investor had to pay full application money attimesubmissionthe application form In ASBAone can makeapplication for shares without actually parting"the money immediately

The amount for application money is only blocked"the accountthe applicant The money is debited frombank account only whenbasisallotment is finalisedalso only for numbershares thatfinally allotted toinvestor Money blocked under ASBA is unblocked fully or partly aswhensharesallotted orissue is withdrawn

Thus ASBA eliminates problems associated"delay or non-receiptrefunds Moreoverbanks continue to give interestaccount as alsomoney blocked"the account is considered for calculatingaverage daily quarterly balances Thusinvestorssavedhasslesrefund deposits while continuing to earn interestthe application money

Source sptulsiancom

Q. What is BasisAllocationBasisAllotment?

A. Afterclosurethe issue,bids receivedaggregated under different categories iefirm allotmentQualified Institutional Buyers (QIBs)Non-Institutional Buyers (NIBs)Retailetc The oversubscription ratiosthen calculated for eachthe categories as againstshares reserved for eachthe categories"the offer document Within eachthese categories,bidsthen segregated into different buckets basedthe numbershares applied for The oversubscription ratio is then applied tonumbershares applied forthe numbershares to be allotted for applicants"eachthe buckets is determined Then,numbersuccessful allottees is determined This process is followed"caseproportionate allotment In caseallotment for QIBsit is subject todiscretionthe post issue lead manager

Q. What is Capital Adequacy Ratio for banks?

A. Capital Adequacy Ratio (CAR)also known as Capital to Risk Weighted Assets Ratio (CRAR)ismeasurea banks capitalis expressed as-percentagea banks risk weighted credit exposures

CAR = Total Capital

Total Risk weighted assets

Total capital comprisesthe banks Tier ITier II capital

Total risk weighted assets takes into account credit riskmarket riskoperational risk

CurrentlyRBI mandates minimum CRAR9butGovernmentIndia has mandated total CRAR12,"8 Tier I capital

Source sptulsiancom

Q. What is Commercial Paper?

A. Commercial paper is-money market instrument issued normally for tenure90 days It is-short term promise to repay- fixed amount that is placedthe market either directly or through-specialized intermediary It is usually issued by companies"a high credit standing"the forma promissory note redeemable at par toholdermaturity thereforedoesnt require any guarantee

Q. What is debt-equity ratio?

A. Debt-equity ratio is-measureleverageindicating proportioncompanys total capital contributed by securedunsecured debt A high debt-equity ratiogenerally 21aboveis not considered favourable for companies Alsothis ratio variesindustry to industry



Debt-equity ratio = Secured + Unsecured debt

Shareholders Funds


Eg As31st March 2010company had secured loanRs 70 croreunsecured loanRs 30 croreshareholders funds (equityreserves)Rs 200 crore



Debt-equity ratio = 70 + 30

200



Debt-equity ratio = 051

Source sptulsiancom

Q. What is Differential pricing?

A. Pricingan issue"one category is offered shares at-price different fromother category is called differential pricing In DIP Guidelines differential pricing is allowed only ifsecurities to applicants"the firm allotment category is at-price higher thanprice at whichnet offer topublic is made The net offer topublic meansoffer made toIndian publicdoes not include firm allotments or reservations or promoters contributions

Q. What is dividend payout ratio?

A. Dividend Payout ratioor simply payout ratioispercentagea companys earnings paid as dividends toshareholders It indicates how wellcompanys earnings supportdividend payment

Dividend Payout ratio = Dividend per equity share X 100

Earnings per share (EPS)

Eg For FY10,-company had EPSRs 10 It paid dividend20 (Rs 2 per equity shareRs 10 each) foryear

Dividend payout ratio = Rs 2 X 100

Rs 10

Dividend payout ratio = 20

Source sptulsiancom

Q. What is dividend yield?

A. Dividend yield is dividend to price ratio It ispercentage calculated by dividing dividend per share by price per share Dividend yield is used to calculateearninginvestment (shares) considering onlyreturns"the formtotal dividends declared bycompany duringyear

Dividend Yield = Interim + Final Dividend X 100

Market Pricethe share

Eg For-company for FY10,

Interim dividend = Rs 2 per share

Final dividend = Rs 3 per share

Share price = Rs 50

Dividend yield = 2 + 3

50

Dividend yield =10

Source sptulsiancom

Q. What is enterprise value?

A. Enterprise value (EV) istotal valuethe firmreflectingmarket valuethe entire business EV is calculated as under

Market Capitalisation

Add Debt (securedunsecured)

Add Minority Interest

Add Preference share capital

Less Cashcash equivalents

Eg Ifmarket capcompany is Rs 100 croreit had debtRs 40 crorecashbank balanceRs 10 crorethenenterprise value is calculated as

EV = 100 + 40 10 crore

= Rs 130 crore

Source sptulsiancom

Q. What is EPS?

A. EPS or Earnings per shareisnet profit earned bycompany divided bynumberoutstanding equity shares If any preference dividend is declaredit is subtracted fromnet profit

Eg A company earned net profitRs 100 crore for FY10 It has 5 crore outstanding equity shares No fresh issueequity shares was made duringyearimplying thatweighted average numberequity shares outstanding duringperiod is 5 crore

EPS = Net profit earned duringperiod

Weighted average numberequity shares outstanding duringperiod

EPS = 100 5

EPS = Rs 20

Source sptulsiancom

Q. What is firm allotment?

A. A company makingissue to public can reserve some sharesallotmentfirm basis for some categories as specified"DIP guidelines Allotmentfirm basis indicates that allotment toinvestor isfirm basis DIP guidelines provide for maximum shares,can be reservedfirm basis The shares to be allottedfirm allotment category can be issued at-price different fromprice at whichnet offer topublic is made provided thatprice at whichsecurity is being offered toapplicants"firm allotment category is higher thanprice atsecuritiesoffered to public

Q. What is Fixed Price offers?

A. An issuer company is allowed to freely priceissue The basisissue price is disclosed"the offer document whereissuer discloses"detail aboutqualitativequantitative factors justifyingissue price The Issuer company can mention-price band20 (cap"the price band should not be more than 20the floor price)"the Draft offer documents filed"SEBIactual price can be determined at-later date before filingthe final offer document"SEBI ROCs

Q. What is free-float?

A. Free-float refers to those sharesare readily available for trading"the stock market It generally excludes promoters\ holdinggovernment strategic holdingother locked-in shares,will not come tomarket for trading"the normal course

Eg MMTC has Rs 5 crore outstanding shares,which 497 crore sharesheld byGovernment under promoter category Onlybalance 334 lakh shares comprisefree floatthe company

Source sptulsiancom

Q. What is Hard underwriting?

A. Hard underwriting is whenunderwriter agrees to buy his commitment at its earliest stage The underwriter guarantees-fixed amount toissuer fromissue Thus,"casesharesnot subscribed by investors,issue is devolvedunderwritersthey have to bring"the amount by subscribing toshares The underwriter bears-riskis much higher"soft underwriting

Q. What is Margin Trading Facility?

A. Margin Trading is trading"borrowed fundssecurities It is essentially-leveraging mechanismenables investors to take exposure"the market overaboveis possible"their own resources SEBI has been prescribing eligibility conditionsprocedural details for allowingMargin Trading Facilitytime to time

Corporate brokers"net worthat least Rs3 croreeligible for providing Margin trading facility to their clients subject to their entering intoagreement to that effect Before providing margin trading facility to-client,memberthe client have been mandated to signagreement for this purpose"the format specified by SEBI It has also been specified thatclient shall not availfacilitymore than one broker at any time

The facilitymargin trading is available for Group 1 securitiesthose securitiesare offered"the initial public offersmeetconditions for inclusion"the derivatives segmentthe stock exchanges

For providingmargin trading facility,-broker may use his own funds or borrowscheduled commercial banks or NBFCs regulated byRBI A broker is not allowed to borrow fundsany other source

The "total exposure"the broker towardsmargin trading facility should not exceedborrowed funds50 per centhis "net worth" While providingmargin trading facility,broker has to ensure thatexposure to-single client does not exceed 10 per centthe "total exposure"the broker

Initial margin has been prescribed as 50the maintenance margin has been prescribed as 40

In addition,-broker has to disclose tostock exchange detailsgross exposure including namethe clientunique identification number underSEBI (Central DatabaseMarket Participants) Regulations2003,namethe scrip

Ifbroker has borrowed funds forpurposeproviding margin trading facility,namethe lenderamount borrowed should be disclosed latest bynext day

The stock exchange,"turnhas to disclosescrip-wise gross outstanding"margin accounts"all brokers tomarket Such disclosure regarding margin-trading doneany day shall be made available aftertrading hoursthe following day

The arbitration mechanismthe exchange would not be available for settlementdisputesif anybetweenclientbrokerarising outthe margin trading facility Howeverall transactions donethe exchangewhether normal or through margin trading facilityshall be covered underarbitration mechanismthe exchange

Q. What is meant by Unique Client Code?

A. In order to facilitate maintaining databasetheir clientsto strengthenknow your client (KYC) norms all brokers have been mandated to use unique client code linked toPAN detailsthe respective clientwill act asexclusive identification forclient

Q. What is meant by Rightfirst refusal?

A. Rightfirst refusalabbreviated as ROFRisrighta person (investor) or company to purchase something beforeoffering is made available to others Ifinvestor PE fund plans to exitcompanyit is obliged to givepromoters or existing shareholders,opportunity to buyshares held byPE before sellingsame to-third party

Thereother rights for minority shareholderssuch as

Tag along right - contractual obligationprotects-minority shareholder"casemajority promoter is selling out Minority shareholder can compel stake salehis stake along"the majority promoter

Drag along right contractual right"minority shareholder to forcemajority shareholder promoter to join"the salethe company If minority shareholder is selling-outit can compel majority shareholder promoter to compulsorily offer their stake as well

Source sptulsiancom

Q. What is meant by Stoploss?

A. Stoploss is-buy or sell ordergets triggered automaticallyoncestock reaches-certain price The aim here is to limitloss on-security (buy or sell) position

A stop order to sell becomes-market order whenitem is offered at or belowspecified price Eg If you have bought 1 shareRIL at Rs 1,050you will enter stoploss order at-price below Rs 1,050say Rs 1,020 If RIL share price falls to Rs 1,020,-sell stoploss order will get triggered,limits your lossaccountpurchase to Rs 30

Similarly,-stop order to buy becomes-market order whenitem is bid at or abovespecified price Eg If you have short-sold 1 shareRIL at Rs 1,050you will enter stoploss order at-price above Rs 1,050say Rs 1,070 If RIL share price rises to Rs 1,070,-buy stoploss order will get triggered,will limit your lossaccountsale to Rs 20

Thereno set rules for stoploss orders Traders deploy very tight stoploss orderswhile investors may not need it also Advantagestoploss is it avoidsneed for constant monitoringshare price Its disadvantage is that short-term price fluctuations could trigger stoploss orders very frequently Alsosetting very narrow stoploss for shares historically having wide price fluctuations could lead to unnecessary triggersstoploss

Eg If you bought 1 shareRIL at Rs 1050"stoplossRs 1020 This means that ifstock falls below 1020your stoploss order will automatically become-market ordershare will be sold atthen prevailing market pricenot necessarilystoploss price Thus setting-stoploss order belowpurchase price will limitlossbut"a very fast-moving marketlosses may be higher than expected

Source sptulsiancom

Q. What is Member Client Agreement Form?

A. This form isagreement entered between clientbroker"the presencewitness whereclient agrees (is desirous) to tradeinvest"the securities listedthe concerned Exchange throughbroker after being satisfiedbrokers capabilities to deal"securities The member,the other hand agrees to be satisfied bygenuinenessfinancial soundnessthe clientmaking client awarehis (brokers) liability forbusiness to be conducted

Q. What is minimum numberdays forbid should remain open"book building?

A. Book should remain open for minimum3 working days

Q. What is Open bookclosed book?

A. Presently,"issues made through book buildingIssuersmerchant bankersrequired to ensure online displaythe demandbids duringbidding period This isOpen book systembook building Here,investor can be guided bymovementsthe bids duringperiod"whichbid is kept open Under closed book building,book is not made publicthe bidders will have to take-callthe price atthey intend to make-bid without having any informationthe bids submitted by other bidders

Q. What is Record Date?

A. Date set by-companywhichinvestor must own sharesto be eligible for dividendshare splitbonusrights issue or other capital gains as declared announced bycompany It isdate established bycompany for determiningshareholders whoentitled to receive dividendbonus or rights sharesthe company

In this caseit is also important to know whatex-date is Ex-date isdatewhichseller,notbuyer,a stock will be entitled to-recently announced dividendbonus or other corporate action The ex-date is usually-business day prior torecord datesince T+2 trading cycle is followed for clearingsettlementtrades"India

Example

If record date for dividend is set by-company as 4th Marchthen those investorswhose names appearthe shareholder list4th Marchas received bycompany formdepository will be entitled todividend Doing-back-calculationforinvestors name to feature"the 4th March shareholder listhe should be holdingshares two days prior to that date ie2nd March (due to T+2 cycle) Thusthose shareholders holding shares at endday 2nd Marchwill be entitled todividend The ex-date,"this casewill be 3rd March,-datewhichbuyer will not be entitled todividend declared

Source sptulsiancom

Q. What is repo ratereverse repo rate?

A. Repo or repurchase option is-meansshort-term borrowingwherein banks sell approved government securities to RBIget funds"exchange In other words,"a repo transactionRBI repurchases government securitiesbanksdependingthe levelmoney supply it decides to maintain"the countrys monetary system

Repo rate isdiscount rate atbanks borrowRBI Reduction"repo rate will help banks to get money at-cheaper ratewhile increase"repo rate will make bank borrowingsRBI more expensive If RBI wants to make it more expensive forbanks to borrow moneyit increasesrepo rate Similarlyif it wants to make it cheaper for banks to borrow moneyit reducesrepo rate

Reverse repo isexact oppositerepo In-reverse repo transactionbanks purchase government securities form RBIlend money tobanking regulatorthus earning interest Reverse repo rate israte atRBI borrows moneybanks Banksalways happy to lend money to RBI since their money is"safe hands"a good interest

Thusrepo rate is always higher thanreverse repo rate

Source sptulsiancom

Q. What is reservationcompetitive basis?

A. ReservationCompetitive Basis is when allotmentshares is made"proportion toshares applied for byconcerned reserved categories Reservationcompetitive basis can be made"a public issue toEmployeesthe companyShareholdersthe promoting companies"the casea new companyshareholdersgroup companies"the casean existing companyIndian Mutual FundsForeign Institutional Investors (including non resident Indiansoverseas corporate bodies)IndianMultilateral development InstitutionsScheduled Banks

Q. What is ReturnEquity (RoE)?

A. ReturnEquityalso known as ReturnNetworth or ReturnShareholders Fundsindicates profitabilitya company by measuring how muchshareholders earned for their investment"the company The higherpercentage,more efficiently equity base has been utilizedindicating better return to investors


RoE is rationet income (available for equity shareholders) to average shareholders equity


RoE = Profit After Tax

Equity Share capital + Free Reserves Miscellaneous Expd


Eg If net profit is Rs100 croreEquity share capital is Rs100 croreReservesSurplus is Rs900 croreMiscellaneous Expd Nil


RoE = 100

100 + 900


ReturnEquity is 10

Source sptulsiancom

Q. What is Safety Net?

A. Any safety net scheme or buy-back arrangementsthe shares proposed"any public issue shall be finalized byissuer company"the lead merchant banker"advancedisclosed"the prospectus Such buy back or safety net arrangements shall be made available only to all original
resident individual allottees limitedto-maximum1000 shares per allotteethe offer is kept open for-period6 months fromlast datedispatchsecurities The details regarding Safety Netcovered under Clause 818DIP Guidelines

Q. What is SEBIs Role"an Issue?

A. Any company making-public issue or-listed company making-rights issuevaluemore than Rs50 lakhs is required to file-draft offer document"SEBI for its observations The company can proceed furtherthe issue only after getting observationsSEBI The validity periodSEBIs observation letter is three months only iecompany has to open its issue within three months period

Q. What is Short SellingSecurities Lending Borrowing?

A. Short Selling means sellinga stock thatseller does not own attimetrade Short selling can be done by borrowingstock through Clearing CorporationClearing Housea stock exchangeis registered as Approved Intermediaries (AIs) Short selling can be done by retail as well as institutional investors Naked short sale is not permitted"Indiaall short sales must result"delivery,informationshort sale has to be disclosed toexchange by endday by retail investors,attimetrade for institutional investors The Securities LendingBorrowing mechanism allows short sellers to borrow securities for making delivery Securities"the FO segmenteligible for short selling

Securities LendingBorrowing (SLB) is-scheme that has been launched to enable settlementsecurities sold short SLB enables lendingidle securities byinvestors throughclearing corporationclearing housestock exchanges to earn-return throughsame For securities lendingborrowing systemclearing corporationsclearing housethe stock exchange would benodal agencywould be registered asApproved Intermediaries(AIs) underSecurities Lending Scheme1997

Under SLBsecurities can be borrowed for-period7 days through-screen based order matching mechanism Securities"the FO segmenteligible for SLB

Q. What is Soft underwriting?

A. Soft underwriting is whenunderwriter agrees to buyshares at later stages as soon aspricing process is complete He thenimmediately places those shares"institutional players The risk faced byunderwriter as such is reduced to-small windowtime Also,soft underwriter hasoption to invoke-force Majeure (actsGod) clause"case therecertain factors beyondcontrol that can affectunderwriters ability to placeshares"the buyers

Q. What is STT?

A. Securities Transaction Tax (STT) is-tax being leviedall transactions donethe stock exchanges at rates prescribed byCentral Governmenttime to time Pursuant toenactmentthe Finance (No2) Act2004,GovernmentIndia notifiedSecurities Transaction Tax Rules2004STT came into effectOctober 12004

Q. What is swap ratio?

A. Swap ratio isexchange ratio used"casemergersacquisitions It isratio"whichacquiring company offers its own shares"exchange fortarget companys shares To calculateswap ratiocompanies analyze financial ratios such as book valueearnings per shareprofits after tax as well as other factorssuch as sizecompanylong-term debtsstrategic reasons formerger or acquisitionso on

For exampleif company A is acquiring company Boffers-swap ratio15it will issue one shareits own company (company A) for every 5 sharesthe company B being acquired In other wordsif company B has 10 crore outstanding equity shares100it is being acquired by company Athen company A will issue 2 crore new equity sharescompany A toshareholderscompany Bproportionately

Source sptulsiancom

Q. What is T2T segmentBSE?

A. Trade-to-trade (T2T) or T segmentBSE is segment"which no intra-day trading is allowed for shares falling"that segmentas each trade results"delivery Transactions placed"this segment have to be mandatorily settledgross basis ie by taking or giving delivery even if you have boughtsoldshares duringsame settlement cycle

If you buy sharesyou must paymoneytake delivery

If you sell sharesyou must givedeliverysharesyou will get money

If you buy todaysell todaydont have deliverythensell position will go"to auctionyou will have to pay heavy penalty

Source sptulsiancom

Q. What isamountfaith that I can laythe contentsthe documents And whom should I approach if thereany lacunae?

A. The document is prepared byindependent specialized agency called Merchant Banker,is registered"SEBI Theyrequired to do through due diligence while preparingoffer document The draft offer document submitted to SEBI is putwebsite for public comments In caseyou have any information aboutissuer or its directors or any other aspectthe issuewhich"your view is not factually reflectedyou may send your complaint to Lead Manager toissue or to SEBIDivisionIssuesListing

Q. What isdifference betweenoffer documentRed Herring Prospectus,-prospectusan abridged prospectus What does it mean when someone says draft offer doc?

A. Offer document means Prospectus"casea public issue or offer for saleLetterOffer"casea rights issue,is filed RegistrarCompanies (ROC)Stock Exchanges An offer document covers allrelevant information to helpinvestor to make hisher investment decision Draft Offer document meansoffer document"draft stage The draft offer documentsfiled"SEBIatleast 21 days prior tofilingthe Offer Document"ROC SEs SEBI may specifies changesif any,"the draft Offer Documentthe issuer orLead Merchant banker shall carry out such changes"the draft offer document before filingOffer Document"ROC SEs The Draft Offer document is availablethe SEBI website for public comments for-period21 days fromfilingthe Draft Offer Document"SEBI

Q. What isdifference between cash EPSEPS?

A. Cash EPS takes into accountcash flow generated by-company on-per share basiswhile EPS looks atnet income generated on-per share basisfor-given period Like EPShighercash EPSbetter it is considered

Cash EPS = Operating cash flow forperiod

Weighted average numberequity shares outstanding

Cash EPS can be computedEPS by adjusting for depreciationamortizationgoodwillother non-cash items such as deferred taxintangibles

Source sptulsiancom

Q. What isdifference between rightsbonus shares?

A. Bonus shares means new shares given freecost to allexisting shareholdersthe company,"proportion to their holdings For example,-company announcing bonus issue15is issuing one (new) bonus share for every five shares held byshareholdersthe company

Rights issues are-proportionate numbershares available to allexisting shareholdersthe company,can be bought at-given price (usually at-discount to current market price) for-fixed periodtime For example,-company announcing rights issue23 at Rs 100 per share (current share price Rs 130 per share)is issuing two (new) rights shares for every three shares held byshareholdersthe company at Rs 100 per share The rights shares can also be sold"the open market If not subscribed to,rights shares lapseclosurethe offer

Source sptulsiancom

Q. What isdifference betweenprimary marketthe secondary market?

A. Inprimary marketsecuritiesoffered to public for subscription forpurposeraising capital or fund Secondary market isequity trading avenue"which already existingpre- issued securitiestraded amongst investors Secondary market could be either auction or dealer market While stock exchange ispartan auction market Over-the-Counter (OTC) is-partthe dealer market

Q. What isdifference between ``Block deal``Bulk deal`?

A. Block deal is-trade,"a minimum quantity5,00,000 shares or minimum valueRs 5 croresexecuted through-single transaction,the special Block Deal window



Bulk deal is-trade,"total quantity bought or sold is more than 05the numberequity sharesthe company



The orders"a block dealnot shown topeople who tradenormal trade window Bulk orders,the other hand,visible to everyone



Source sptulsiancom

Q. What ismain difference between offershares through book buildingoffershares through normal public issue?

A. Price atsecurities will be allotted is not known"caseoffershares through book building while"caseoffershares through normal public issueprice is known"advance to investor In caseBook Building,demand can be known everyday asbook is built But"casethe public issuedemand is known atclosethe issue

Q. What ismaximum brokerage that-broker can charge?

A. The maximum brokerage that can be charged by-broker has been specified"the Stock Exchange Regulationshenceit may differacross various exchanges As perBSE NSE Bye Laws,-broker cannot charge more than 25 brokeragehis clients

Q. What isminimum application money I need to pay?

A. This differsissue to issue In-normal issue,Lead managers decidevaluethis would be notifiedthe form In-book building issue,-price range is declaredthe investors who quote higher value would be allotted In Highlights pageany IPOissuesexplained"detail

Q. What ispay-in daypay- out day?

A. Pay"day isday whenbrokers shall make payment or deliverysecurities toexchange Pay out day isday whenexchange makes payment or deliverysecurities tobroker Settlement cycle isT+2 rolling settlement basis wef April 012003 The exchanges have to ensure thatpay outfundssecurities toclients is done bybroker within 24 hoursthe payout The Exchanges will have to issue press release immediately after pay out

Q. What isprocedure for getting-demat account?

A. The FAQs relating to demat have been covered"the Investor Education sectionthe SEBI website"a separate head Theyavailablethe httpinvestorsebigovinfaqdematfaqhtml

Q. What isrecourse available toinvestor"caseissue complaints?

A. Mostthe issue complaints pertain to non-receiptrefund or allotmentor delay"receiptrefund or allotmentpaymentinterest thereon These complaints shall be made topost issue Lead Managerwho"turn will take upmatter"registrar to redresscomplaints In caseinvestor does not receive any reply within-reasonable timeinvestor may complain to SEBIOfficeinvestors Assistance

Q. What isrolea Lead Manager (prepost issue)?

A. Inpre-issue process,Lead Manager (LM) takes updue diligencecompanys operations management business plans legal etc Other activitiesthe LM include draftingdesignOffer documentsProspectusstatutory advertisementsmemorandum containing salient featuresthe Prospectus The BRLMs shall ensure compliance"stipulated requirementscompletionprescribed formalities"the Stock ExchangesRoCSEBI including finalisationProspectusRoC filing Appointmentother intermediaries vizRegistrar(s)PrintersAdvertising AgencyBankers toOffer is also included"the pre-issue processes

The LM also draws upvarious marketing strategies forissue The post issue activities including managementescrow accountscoordinate non-institutional allocationintimationallocationdispatchrefunds to bidders etcperformed byLM The post Offer activities forOffer will involve essential follow-up steps,includefinalizationtradingdealinginstrumentsdispatchcertificatesdematdeliveryshares,"the various agencies connected"the work such asRegistrar(s) toOfferBankers toOfferthe bank handling refund business The merchant banker shall be responsible for ensuring thatagencies fulfill their functionsenable it to discharge this responsibility through suitable agreements"the Company

Q. What isrolea registrar?

A. The Registrar finalizeslisteligible allottees after deletinginvalid applicationsensures thatcorporate action for creditingshares todemat accountsthe applicants is donethe dispatchrefund orders to those applicablesent The Lead manager coordinates"the Registrar to ensure followso that thatflowapplicationscollecting bank branchesprocessingthe applicationsother matters tillbasisallotment is finalizeddispatch security certificatesrefund orders completedsecurities listed

Q. What isrolebankers toissue?

A. Bankers toissueasname suggestscarries out allactivitiesensuring thatfundscollectedtransferred toEscrow accounts The Lead Merchant Banker shall ensure that Bankers toIssueappointed"allmandatory collection centers as specified"DIP Guidelines The LM also ensures follow-up"bankers toissue to get quick estimatescollectionadvisingissuer about closurethe issuebasedthe correct figures

Q. What isroleSEBI"IPO grading exercise?

A. SEBI does not play any role"the assessment made bygrading agency The grading is intended to beindependentunbiased opinionthat agency

Q. What is IPO Grading?

A. IPO grading isgrade assigned by-Credit Rating Agency registered"SEBItoinitial public offering (IPO)equity shares or any other securitymay be converted into or exchanged"equity shares at-later date The grade represents-relative assessmentthe fundamentalsthat issue"relation toother listed equity securities"India Such grading is generally assigned on-five-point point scale"a higher score indicating stronger fundamentalsvice versa as below

IPO grade 1 Poor fundamentals

IPO grade 2 Below-average fundamentals

IPO grade 3 Average fundamentals

IPO grade 4 Above-average fundamentals

IPO grade 5 Strong fundamentals

IPO grading has been introduced asendeavor to make additional information available forinvestors"order to facilitate their assessmentequity issues offered throughIPO

Q. What kinddetails do I have to provide"Client Registration form?

A. The brokers have to maintain-databasetheir clientsforyou have to fill client registration form In caseindividual client registrationyou have to broadly provide following information


Permanent Account Number (PAN),has been made mandatory for allinvestors participating"the securities market
Your namedatebirthphotographaddresseducational qualificationsoccupationresidential status(Resident Indian NRIothers)
Bankdepository account details
If youregistered"any other brokerthennamebrokerconcerned Stock exchangeClient Code Number

For proofaddress (any onethe following)

Passport
Voter ID
Driving license
Bank Passbook
Rent Agreement
Ration Card
Flat Maintenance Bill
Telephone Bill
Electricity Bill
Insurance Policy

Each client has to use one registration form In casejoint names family members,-separate form has to be submitted for each person

In caseCorporate Clientfollowing information has to be provided
Nameaddressthe CompanyFirm
Dateincorporationdatecommencementbusiness
Registration number(with ROCSEBI or any government authority)
DetailsPAN
DetailsPromotersPartnersKey managerial Personnelthe CompanyFirm"specified format
BankDepository Account Details
Copiesthe balance sheet forlast 2 financial years (copiesannual balance sheet to be submitted every year)
Copylatest share holding pattern including listall those holding more than 5"the share capitalthe companyduly certified byCompany Secretary Whole time DirectorMD (copyupdated shareholding pattern to be submitted every year)
Copiesthe MemorandumArticlesAssociation"casea company body corporatepartnership deed"casea partnership firm
Copythe Resolutionboarddirectors approving participation"equity derivatives debt tradingnaming authorized persons for dealing"securities
PhotographsPartnersWhole time directorsindividual promoters holding 5 or moreeither directly or indirectly,"the shareholdingthe company andpersons authorized to deal"securities
If registered"any other brokerthennamebrokerconcerned Stock exchangeClient Code Number

Q. What proof can bidder request from-trading member or-syndicate member for entering bids?

A. The syndicate member returnscounterfoil"the signaturedatestampthe syndicate member The investor can retain this as-sufficient proof thatbids have been taken into account

Q. What recoursesavailable to me for redressing my grievances?

A. You have following recourses availableOfficeInvestor AssistanceEducation (OIAE) You can lodge-complaint"OIAE DepartmentSEBI against companies for delaynon-receiptsharesrefund ordersetcand"Stock Exchanges against brokerscertain trade disputes or non receiptpaymentsecurities

Arbitration If no amicable settlement could be reachedthen you can make application for reference to Arbitration underBye Lawsconcerned Stock Exchange

CourtLaw

Q. Where can I get-form for applying bidding forshares?

A. The form for applyingbiddingshares is available"all syndicate memberscollection centers,brokers toissuethe bankers toissue

Q. Where do I get dataprimary issues (issuertotal issuesissue size,intermediariesetcduring-given period)?

A. SEBI brings out-monthly bulletin that is available offshelf at bookstores A digital versionthe same is availablethe SEBI website underNewsPublications section The Bulletin contains allrelevant historical figuresintermediary issueintermediary particulars duringgiven period placed against historical figures

Q. Which arereliable sources for me to get information about response to issues?

A. Incasebook-built issues,exchanges (BSENSE) displaydata regardingbids obtained (on-consolidated basis between bothexchanges) The data regardingbids is also available categorywise Afterprice has been determinedthe basisbidding,statutory public advertisement containinginter alia,price as well as-table showingnumbersecuritiesthe amount payable byinvestorbasedthe price determinedis issued

Q. Which members will be allowed to participate"book buildingissue?

A. Book Running Lead Manager appointed byissuer will intimate toexchangelistmembers whoeligible to participate"the issue These members will be allowed to enterbids"the IPO

Q. Who areintermediaries"an issue?

A. Merchant Bankers toissue or Book Running Lead Managers (BRLM)syndicate membersRegistrars toissueBankers toissueAuditorsthe companyUnderwriters toissueSolicitorsetc areintermediaries toissue The issuer disclosesaddressestelephonefax numbersemail addressesthese intermediaries In addition to this,issuer also disclosesdetailsthe compliance officer appointed bycompany forpurposethe issue

Q. Who decidesprice band?

A. It may be understood thatregulatory mechanism does not play-role"settingprice for issues It istocompany to decidethe price orprice band,"consultation"Merchant Bankers The basisissue price is disclosed"the offer document The issuer is required to disclose"detail aboutqualitativequantitative factors justifyingissue price

Q. Who decidespricean issue?

A. Indian primary market ushered"an erafree pricing"1992 Following this,guidelines have provided thatissuer"consultation"Merchant Banker shall decideprice There is no price formula stipulated by SEBI SEBI does not play any role"price fixation The companymerchant bankerhowever required to give full disclosuresthe parametersthey had considered while decidingissue price Theretwo typesissues one"companyLM fix-price (called fixed price)otherwherecompanyLM stipulate-floor price or-price bandleave it to market forces to determinefinal price (price discovery through book building process)

Q. Who is-broker?

A. A broker is-membera recognized stock exchangewho is permitted to do tradesthe screen-based trading system different stock exchanges He is enrolled as-member"the concerned exchangeis registered"SEBI

Q. Who is-sub broker?

A. A sub broker is-person who is registered"SEBI as suchis affiliated to-membera recognized stock exchange

Q. Who is-Syndicate Member?

A. The Book Runner(s) may appoint those intermediaries whoregistered"the Boardwhopermitted to carryactivity asUnderwriter as syndicate members The syndicate membersmainly appointed to collectentirebid forms"a book built issue

Q. Who is eligible for reservationhow much (QIBsNIIsetc,)?

A. In-book built issue allocation to Retail Individual Investors (RIIs)Non Institutional Investors (NIIs)Qualified Institutional Buyers (QIBs) is"the ratio35 15 50 respectively In casebook built issuesmade pursuant torequirementmandatory allocation60 to QIBs"termsRule 19(2)(b)SCRR,respective figures30 for RIIs10 for NIIs This is-transitory provision pending harmonizationthe QIB allocation"termsthe aforesaid Rule"that specified"the guidelines

Q. Who is eligible to be-BRLM?

A. A Merchant banker possessing-valid SEBI registration"accordance"the SEBI (Merchant Bankers) Regulations1992 is eligible to act as-Book Running Lead Manager toissue

Q. Who is Qualified Institutional Buyer (QIBs)?

A. Qualified Institutional Buyersthose institutional investors whogenerally perceived to possess expertisethe financial muscle to evaluateinvest"the capital markets In termsclause 222B (v)DIP Guidelines,-Qualified Institutional Buyer shall mean
a Public financial institution as defined"section 4AtheCompanies Act1956
b Scheduled commercial banks
c Mutual funds
d Foreign institutional investor registered"SEBI
e Multilateralbilateral development financial institutions
f Venture capital funds registered"SEBI
g Foreign Venture capital investors registered"SEBI
h State Industrial Development Corporations
i Insurance Companies registered"the Insurance Regulatoryand Development Authority (IRDA)
j Provident Funds"minimum corpusRs25 crores
k Pension Funds"minimum corpusRs 25 crores)

These entitiesnot required to be registered"SEBI as QIBs Any entities falling undercategories specified aboveconsidered as QIBs forpurposeparticipating"primary issuance process

Q. Whom should I contact for my Stock Market related transactions?

A. You can contact-broker or-sub broker registered"SEBI for carrying out your transactions pertaining tocapital market

Q. Withpresencethe Central Listing Authority,would beroleSEBI"the processingOffer documents forissue?

A. The Central Listing Authoritys CLAfunctions have been detailed under Regulation 8SEBI (Central Listing Authority) Regulations2003 (CLA Regulations) issuedAugust 212003amendedto October 142003 In briefit covers processing applications for letter precedent to listing fromapplicants to make recommendations toBoardissues pertaining toprotectionthe interestthe investors"securitiesdevelopmentregulationthe securities marketincludinglisting agreementslisting conditionsdisclosures to be made"offer documents and to undertake any other functions as may be delegated to it byBoardtime to time SEBI asregulatorthe securities market examines allpolicy matters pertaining to issueswill continue to do so even duringexistencethe CLA SinceCLA is not yet operational,reply to this question would be updated thereafter
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