SEBI (Venture Capital Funds)(Amendment) Regulations, 2000 and  the SEBI (Foreign Venture Capital Investors) Regulations, 2000.  1. Following are the salient features of SEBI (Venture Capital Funds)(Amendment) Regulations, 2000 : 1.1 Definition of Venture Capital Fund : The Venture Capital Fund is now defined as a fund established in the form of a Trust, a company including a body corporate and registered with SEBI which:  has a dedicated pool of capital;  raised in the manner specified under the Regulations; and to invest in Venture Capital Undertakings in accordance with the Regulations." 1.2 Definition of Venture Capital Undertaking: Venture Capital Undertaking means a domestic company :-  Whose shares are not listed on a recognised stock exchange in India Which is engaged in business including providing services, production or manufacture of articles or things, or does not include such activities or sectors which are specified in the negative list by the Board with the approval of the Central Government by notification in the Official Gazette in this behalf. The negative list includes real estate, non-banking financial services, gold financing, activities not permitted under the Industrial Policy of the Government of India. 1.3 Minimum contribution and fund size : the minimum investment in a Venture Capital Fund from any investor will not be less than Rs. 5 lacs and the minimum corpus of the fund before the fund can start activities shall be atleast Rs. 5 crores. 1.4 Investment Criteria : The earlier investment criteria has been substituted by a new investment criteria which has the following requirements :  disclosure of investment strategy;  maximum investment in single venture capital undertaking not to exceed 25% of the corpus of the fund; Investment in the associated companies not permitted;  atleast 75% of the investible funds to be invested in unlisted equity shares or equity linked instruments.  Not more than 25% of the investible funds may be invested by way of:  subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed subject to lock-in period of one year; debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.  It has also been provided that Venture Capital Fund seeking to avail benefit under the relevant provisions of the Income Tax Act will be required to divest from the investment within a period of one year from the listing of the Venture Capital Undertaking. 1.5 Disclosure and Information to Investors: In order to simplify and expedite the process of fund raising, the requirement of filing the Placement memorandum with SEBI is dispensed with and instead the fund will be required to submit a copy of Placement Memorandum/ copy of contribution agreement entered with the investors along with the details of the fund raised for information to SEBI. Further, the contents of the Placement Memorandum are strengthened to provide adequate disclosure and information to investors. SEBI will also prescribe suitable reporting requirement from the fund on their investment activity. 2. QIB status for Venture Capital Funds : The venture capital funds will be eligible to participate in the IPO through book building route as Qualified Institutional Buyer subject to compliance with the SEBI (Venture Capital Fund) Regulations.  3. Relaxation in Takeover Code: The acquisition of shares by the company or any of the promoters from the Venture Capital Fund under the terms of agreement shall be treated on the same footing as that of acquisition of shares by promoters/companies from the state level financial institutions and shall be exempt from making an open offer to other shareholders. 4. Investments by Mutual Funds in Venture Capital Funds: In order to increase the resources for domestic venture capital funds, mutual funds are permitted to invest upto 5% of its corpus in the case of open ended schemes and upto 10% of its corpus in the case of close ended schemes. Apart from raising the resources for Venture Capital Funds this would provide an opportunity to small investors to participate in Venture Capital activities through mutual funds. 5. Government of India Guidelines: The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India dated September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital Fund Regulations.    6. The following will be the salient features of SEBI (Foreign Venture Capital Investors) Regulations, 2000 : 6.1 Definition of Foreign Venture Capital Investor : any entity incorporated and established outside India and proposes to make investment in Venture Capital Fund or Venture Capital Undertaking and registered with SEBI.  6.2 Eligibility Criteria : entity incorporated and established outside India in the form of investment company, trust, partnership, pension fund, mutual fund, university fund, endowment fund, asset management company, investment manager, investment management company or other investment vehicle incorporated outside India would be eligible for seeking registration from SEBI. SEBI for the purpose of registration shall consider whether the applicant is regulated by an appropriate foreign regulatory authority; or is an income tax payer; or submits a certificate from its banker of its or its promoters track record where the applicant is neither a regulated entity nor an income tax payer. 6.3 Investment Criteria :  disclosure of investment strategy;  maximum investment in single venture capital undertaking not to exceed 25% of the funds committed for investment to India however it can invest its total fund committed in one venture capital fund; atleast 75% of the investible funds to be invested in unlisted equity shares or equity linked instruments.  Not more than 25% of the investible funds may be invested by way of:  subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed subject to lock-in period of one year; debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.  7. Hassle Free Entry and Exit : The Foreign Venture Capital Investors proposing to make venture capital investment under the Regulations would be granted registration by SEBI. SEBI registered Foreign Venture Capital Investors shall be permitted to make investment on an automatic route within the overall sectoral ceiling of foreign investment under Annexure III of Statement of Industrial Policy without any approval from FIPB. Further, SEBI registered FVCIs shall be granted a general permission from the exchange control angle for inflow and outflow of funds and no prior approval of RBI would be required for pricing, however, there would be ex-post reporting requirement for the amount transacted. 8. Trading in unlisted equity : The Board also approved the proposal to permit OTCEI to develop a trading window for unlisted securities where Qualified Institutional Buyers(QIB) would be permitted to participate.  Some of the members of the Board felt that the mandated post listing exit time frame of one year for availing tax pass through by a domestic Venture Capital Fund could be reconsidered by the Government in the light of international experience and the need to avoid operational restrictions and optimize inflow of venture capital in the country. The Board also desired that a small Group within SEBI could be set up to codify the experience of the existing players, international experience including tax treatment and potential areas for venture capital funding.

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Sub: Amendments to SEBI (Disclosure and Investor Protection) Guidelines, 2000 The Board in its meeting held on June 14, 2000 considered and approved amendments to certain provisions of DIP Guidelines pertaining to eligibility norms for companies issuing securities, Promoters’ contribution and Lock-in requirements, Contents of offer documents, Pre and post issue obligations of the lead merchant banker, Other issue requirements in eligible sectors and Guidelines on preferential issues. A circular issued in this regard is enclosed. Following are the contents of the circular: Section A: The definition of net worth has been included in the Chapter I-Preliminary and has been deleted from Chapter II- Eligibility Norms for Companies issuing Securities. Section B covers the amendments to the guidelines on eligibility norms for public issue by unlisted/ listed companies and offers for sale. Section C gives the amended guidelines on promoters’ contribution and lock in requirements. Section D gives amendments to the Pre-Issue obligations. Section E contains amendments to the contents of the offer documents. Section F covers the amendments to the post issue obligations of the lead merchant banker. Section G gives the amendments to other requirements of public issue of securities by companies in eligible sectors.   Section H contains the amendment to the Guidelines on advertisements. Section I gives amended guidelines on preferential issue. Section J covers amendments to the operational Guidelines.    Applicability This circular shall be applicable to the offer documents filed with the Board on or after August 7, 2000. Explanation Section I shall be applicable to the preferential issues for which notice convening the General Meeting of the shareholders for approving such proposals is issued on or after August 7, 2000. Section A: Chapter I- Preliminary After sub clause xix of Clause 1.2 a new sub clause "xix a" shall be added: "xix a. "networth" means aggregate of value of the paid up equity capital and free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off (including miscellaneous expenses not written off)." Section B: Chapter II - Eligibility Norms The existing Clause 2.2. shall be substituted by the following: - "2.2 - Public Issue by Unlisted Companies 2.2.1 An unlisted company shall make a public issue of any equity shares or any security convertible into equity shares at a later date subject to the following: - It has a pre-issue networth of not less than Rs.1 crore in three (3) out of preceding five (5) years, with a minimum networth to be met during immediately preceding two (2) years; and It has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years. Provided that the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) does not exceed five (5) times its pre-issue networth as per the last available audited accounts, either at the time of filing draft offer document with the Board or at the time of opening of the issue. 2.2.2 An unlisted company can make a public issue of equity shares or any security convertible into equity shares at a later date, only through the book-building process if , it does not comply with the conditions specified in clause 2.2.1 above, or, its proposed issue size exceeds five times its pre-issue networth as per the last available audited accounts either at the time of filing draft offer document with the Board or at the time of opening of the issue   Provided that sixty percent (60%) of the issue size shall be allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded. Explanation 1: Profits emanating only from the information technology business or activities of the company, shall be considered for the purposes of computation of the track record of distributable profits in following cases: for companies in "Information Technology" sector or proposing to raise moneys for projects in "information technology" sector, for companies whose name suggests that they are engaged in information technology activities / business, etc. viz. the company’s name containing the words ‘software, hardware, info, infotech, .com, informatics, technology, computer, information, etc.; In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered only if the financial statements of the partnership business for the said years conform to and are revised in the format prescribed for companies under the Companies Act, 1956 and also comply with the following: adequate disclosures are made in the financial statements as required to be made by the companies as per Schedule VI of the Companies Act, 1956; the financial statements shall be duly certified by a Chartered Accountant stating that: the accounts as revised or otherwise and that the disclosures made are in accordance with the provisions of Schedule VI of the Companies Act, 1956; and the accounting standards of the Institute of Chartered Accountants of India(ICAI) have been followed and that the financial statements present a true and fair picture of the firm’s accounts. the lead merchant banker shall also verify and confirm that the financial statements furnished on behalf of the partnership firm are in accordance with the Accounting Standards prescribed by the ICAI. (iii) In case of an unlisted company formed out of a division of an existing company, the track record of distributable profits of the division spun off shall be considered only if the requirements regarding financial statements as specified for partnership firms in clause (ii) above are complied with.   Explanation 2: For the purposes of clause 2.2 above, the term - "Three years out of immediately preceding five years", shall mean that at least three (3) audited accounts for a period of not less than thirty six (36) months are available for computation of the minimum track record of three (3) years of distributable profits. (ii) "Qualified Institutional Buyer" shall mean - public financial institution as defined in section 4A of the Companies Act, 1956; scheduled commercial banks; mutual funds; foreign institutional investor registered with SEBI; multilateral and bilateral development financial institutions; Venture capital funds registered with SEBI. (iii) "Information Technology" shall comprise the following activities: Production of computer software i.e. any representation of instruction, data, sound or image including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine. Information technology services i.e. any service which results from the use of any information technology software over a system of information technology products for realizing value addition and will consist of (I) IT software including data processing services (II) Consumer systems, communication and network services and (III) other IT related services. manufacturing of information technology hardware Manufacturing of information technology products i.e. computer systems, communications and network products and peripherals and subsystems. Manufacturing of information technology components i.e. active and passive electronic components, plastic, metal, non-metal, parts and sub assemblies of IT products. computer education and training computer maintenance computer consultancy e-commerce / internet related activities 2. The existing clause 2.2.3 shall be substituted by the following: "2.2.3 Offer for sale 2.2.3.1 A company, whose equity shares or any security convertible at later date into equity shares are offered through an offer for sale, shall comply with the provisions of Clause 2.2. The existing clause 2.3 shall be substituted by the following :- "2.3 Public Issue by Listed Companies 2.3.1 A listed company shall be eligible to make a public issue of equity shares or any security convertible at later date into equity share. Provided that the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) does not exceed five (5) times its pre-issue networth as per the last available audited accounts either at the time of filing draft offer document with the Board or at the time of opening of the issue. 2.3.2 A listed company which does not fulfil the condition given in the proviso to clause 2.3.1 above, shall be eligible to make a public issue only through the book building process. Provided that sixty percent (60%) of the issue size shall be allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded. 2.3.3 A listed company which has changed its name so as to indicate that it is a company in the information technology sector as defined in Clause ‘iii’ of Explanation 2 of Clause 2.2.1, during a period of three years prior to filing of offer document with the Board, shall comply with the requirements of Clause 2.2 for unlisted companies, before it can make a public issue of equity shares or securities convertible at a later date into equity shares." In clause 2.4.1 the words "clauses 2.2.1, 2.2.2 and 2.3.1" shall be replaced by the words "clauses 2.2 and 2.3" The Explanation i) appearing after clause 2.4.1 shall be deleted. Section C: Chapter IV – Promoters’ Contribution and Lock-in requirements 1. In Clause 4.9.1 after the words "the issue opening date" the following shall be added : "which shall be kept in an escrow account with a Scheduled Commercial Bank and the said contribution / amount shall be released to the company along with the public issue proceeds." 2. After clause 4.9.1 and before the existing proviso a new proviso shall be added: "Provided that, where the promoters’ contribution has been brought prior to the public issue and has already been deployed by the company, the company shall give the cash flow statement in the offer document disclosing the use of such funds received as promoters’ contribution". 3. In the existing proviso to Clause 4.9.1, in the first line after the word "Provided", word "further" and after the words "on pro-rata", the word "basis" shall be added. The existing Clause 4.14 shall be substituted by the following new clause : "4.14 Lock-in of pre issue share capital of an unlisted company 4.14.1 The entire pre-issue share capital, other than that locked-in as promoters’ contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. 4.14.2 Clause 4.14.1 shall not be applicable to the pre-issue share capital held by venture capital funds registered with the Board. However, the same shall be locked-in as per the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and any amendment thereto. held for a period of at least one year at the time of filing draft offer document with the Board and being offered to the public through offer for sale." 5. In Clause 4.12 the words "3 years" wherever they appear shall be substituted by the words "one year". 6. The existing clause 4.14 A shall be substituted by the following new clause: "4.14 A Lock-in of securities issued on firm allotment basis Securities issued on firm allotment basis shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later." Section D : Chapter V – Pre- Issue Obligations In the clause 5.3.4.1, the word "companies" appearing before the words "or Chartered Accountants" shall be replaced with the words "Company Secretary". The existing Clause 5.6.2 shall be substituted by the following :- "5.6.2. The lead merchant banker shall, while filing the draft offer document with the Board in terms of Clause 2.1, also file the draft offer document with the stock exchanges where the securities are proposed to be listed make copies of draft offer document available to the public obtain and furnish to the Board, an in-principle approval of the stock exchanges for listing of the securities within 15 days of filing of the draft offer document with the stock exchanges." Section E: Chapter VI - Contents of the offer document In the sub-clause (xi) of the clause 6.2.1.2 after the word "is proposed" following shall be added: "and the details of in-principle approval for listing obtained from these stock exchanges." The sub clause (b) of clause 6.5.6.1 shall be modified to read as follows: "(b)- that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment." After existing clause 6.5.7.1, a new clause 6.5.7.2 shall be added :- "6.5.7.2 - The offer document shall contain a statement of the Board of Directors of the issuer company to the effect that – the utilisation of monies received under promoters’ contribution and from firm allotments and reservations shall be disclosed under an appropriate head in the balance sheet of the company indicating the purpose for which such monies have been utilised. the details of all unutilised monies out of the funds received under promoters’ contribution and from firm allotments and reservations shall be disclosed under a separate head in the balance sheet of the company indicating the form in which such unutilised monies have been invested". The existing Clause 6.12 shall be substituted by the following: " 6.12. Projections No forecast or projections relating to financial performance of the issuer company shall be given in the offer document." After clause 6.13.1, new clause 6.13.2 shall be added which shall read as follows: "6.13.2 (i) The issuer company and the lead merchant banker shall provide the accounting ratios as mentioned in clause 6.13.1 above to justify the basis of issue price. Provided that, the lead merchant banker shall not proceed with the issue in case the accounting ratios mentioned above, do not justify the issue price. (ii) In case of book built issues, the offer document shall state that the final price has been determined on the basis of the demand from the investors." After sub clause (i) to clause 6.27, new sub clauses (ii) and (iii) shall be added- "(ii) The issuer company and the lead merchant banker shall provide the accounting ratios as mentioned in sub clause (i) to clause 6.27 above to justify the basis of issue price. Provided that, the lead merchant banker shall not proceed with the issue in case the accounting ratios mentioned above, do not justify the issue price. (iii) In case of book built issues, the offer document shall state that the final price has been determined on the basis of the demand from the investors." Clause 6.45.8 shall be substituted by the following:- "6.45.8 – The accounting ratios as mentioned in clause 6.13.1. Provided that, the lead merchant banker shall not proceed with the issue in case the accounting ratios mentioned above, do not justify the issue price. In case of book built issues, the offer document shall state that the final price has been determined on the basis of the demand from the investors." Section F: Chapter VII - Post Issue Requirements 1. Following new Clauses 7.7.1 and 7.7.2 shall be added : "7.7.1 The lead merchant banker shall ensure that the despatch of share certificates / refund orders / cancelled stock invests and demat credit is completed and the allotment and listing documents submitted to the stock exchanges within 2 working days of finalisation of the basis of allotment. 7.7.2 The post issue lead manager shall ensure that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment." 2. The existing Clauses 7.7.1 to 7.7.5 shall be re-numbered as 7.7.3 to 7.7.7. Section G: Chapter VIII - Other Issue Requirements In Clause 8.3.4, the words "information technology sector" shall be substituted by the words "in any of the eligible sectors" 2. After Clause 8.3.4, Explanations 1 & 2 shall be added : "Explanation 1 : For the purpose of the above clause company in the eligible sectors shall mean : company deriving 75% or more of their turnover from information technology activities during the two years immediately preceding the date of filing the offer document with the Board company deriving 75% or more of their turnover from media/entertainment activities during the two years immediately preceding the date of filing the offer document with the Board company deriving 75% or more of their turnover from telecommunication activities during the two years immediately preceding the date of filing the offer document with the Board "Explanation 2 : For the purposes of Explanation 1 – "Information Technology" shall have the same meaning as in clause (iii) of Explanation 2 to Clause 2.2. (b) "Media/Entertainment " shall comprise: production of television programmes production of films - corporate films, feature films, documentary films etc. production of radio programmes production of print publications like books, newspapers, magazines, journals etc. entertainment websites offering music, films etc. news websites production of music event management running of television channels running of radio stations/channels production of Advertisements (c) "Telecommunication " shall comprise: Internet Service providers Providers of telephony Television/internet cable networks Providers of internet and telephony Gateways Producers of communication software Producers of internet networking hardware Providers of Satellite services " Section H: Chapter IX- Guidelines on Advertisement 1. In sub clause b of clause 9.1.12 the words "point 9 size" shall be replaced with words "point 7 size". Section I: Chapter XIII - Guidelines for Preferential Issues After sub Clause 13.1.3, a new clause 13.1A shall be added : "13.1A The explanatory statement to the notice for the general meeting in terms of section 173 of the Companies Act, 1956 shall contain - the object/s of the issue through preferential offer, intention of promoters/ directors/ key management persons to subscribe to the offer, shareholding pattern before and after the offer, proposed time within which the allotment shall be complete the identity of the proposed allottees and the percentage of post preferential issue capital that may be held by them. After sub Clause (b) of Clause 13.3.1, a new sub clause (c ) shall be added: "13.3.1.(c) In addition to the requirements for lock in of instruments allotted on preferential basis to promoters/ promoter group as per clause 13.3.1 (a) and (b), the instruments allotted on preferential basis to any person including promoters/promoters group shall be locked-in for a period of one year from the date of their allotment except for such allotments on preferential basis which involve swap of equity shares/ securities convertible into equity shares at a later date, for acquisition." The existing sub Clause (c ) of Clause 13.3.1 shall be renumbered as sub Clause (d). In Clauses 13.4.1(a) and 13.5.1 (a), the word "DFI" shall be substituted by the word "company". After Clause 13.4.1, a new clause 13.4.2 shall be added : "13.4.2 - The equity shares and securities convertible into equity shares at a later date, allotted in terms of the above said resolution shall be made fully paid up at the time of their allotment. Provided that payment in case of warrants shall be made in terms of clause 13.1.2.3 above." The existing sub clause (b) of clause 13.4.1 shall be renumbered as clause 13.4.3. 5. After clause 13.5, a new clause 13.5A shall be added : "13.5A The details of all monies utilised out of the preferential issue proceeds shall be disclosed under an appropriate head in the balance sheet of the company indicating the purpose for which such monies have been utilised. The details of unutilised monies shall also be disclosed under a separate head in the balance sheet of the company indicating the form in which such unutilised monies have been invested". In clause 13.7.1 (ii) (b) the words "clause 6.4.2 (m) " shall be replaced with the words "Explanation I and II , Clause 6.4.2.1"   Section J: Chapter XVI – Operational Guidelines The Clause 16.1.2(b) shall be modified to read as follows: "16.1.2 (b) The lead merchant banker shall make ten (10) copies of the draft offer document available to the dealing office of the Board, three (3) copies to the Primary Market Department, SEBI, Head Office and 25 copies to the stock exchange(s) where the issue is proposed to be listed." The existing Clause 16.1.3 shall be modified to read as follows: " 16.1.3 (a) The lead merchant banker shall submit the draft offer document on a computer floppy to the dealing office of the Board and to the Primary Market Department, SEBI, Head Office, as specified in Schedule XXIII. 16.1.3 (b) In case of book built issues the lead merchant banker shall submit a printed and soft copy on a computer floppy, of the draft offer document incorporating the Board’s observations and a printed copy of bid cum application form to the Primary Market Department, SEBI, Head Office at least five days before opening of bidding." In the existing clause 16.1.5 after words " the following details" and before the words "certified as correct" the words "about themselves" shall be inserted. The sub clauses (vii) to (xiii) of existing clause 16.1.5 shall be deleted. The existing clause 16.1.5 shall be re-numbered as 16.1.5 (a). Two new clauses 16.1.5 (b) and 16.1.5 (c) shall be added after 16.1.5 (a) : "16.1.5(b) The following details about the issuer company certified as correct shall be furnished by the lead merchant banker along with their forwarding letter while filing offer documents for public/ rights issue/ buyback/ takeovers: (i) whether any promoter/ director/ group /associate company/entity of the issuer company and/or any company/entity with which any of the above is associated as promoter/ director/ partner/ proprietor, is/was engaged in securities related business and registered with SEBI. (ii) If any one or more of these persons/entities are/ were registered with SEBI, their respective registration numbers. (iii) If registration has expired, reasons for non renewal. (iv) Details of any enquiry / investigation conducted by SEBI at any time. (v) Penalty imposed by SEBI (Penalty includes deficiency/warning letter, adjudication proceedings, suspension / cancellation / prohibitory orders) (vi) Outstanding fees payable to SEBI by these entities, if any. 16.1.5 (c) The draft and final offer documents submitted to the Board on computer floppies as per the clause 16.1.3 and 16.1.4(c) shall be accompanied by the information as per format in Schedule XXIIIA." 5. Clause 16.2.1 shall be deleted.

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Board meeting held on June 14, 2000.

1.The Board approved the SEBI’s Annual Report for the year 1999-2000.

Secondary Market

2.The Board also discussed the proposal of the Introduction of Carry Forward in Rolling Settlement and approved :

The introduction of Carry Forward System in the Rolling Settlement as proposed by the reconvened Prof. J. R. Varma Committee. i.e. both the daily and weekly carry forward system with maturities of 1, 2, 3, 4 and 5 days. The introduction of Continous Net Settlement (CNS) by exchanges.

3.The Board also approved the following changes for the existing Carry Forward System under the weekly account period settlement :

Increase in the carry forward limit per broker from the existing limit of Rs. 20 crore to Rs. 40 crores. The margin up to the present limit of 20 crores will remain at the present level of 15% and the incremental position will attract a minimum margin of 20%. Further, there will be scrip wise broker wise position limit, which presently will be Rs. 5 crores. To continue the margin on carry forward trades on gross basis. The introduction of margin on gross basis in the cash market as well as the incorporation of client code will be considered separately by the Risk Management Group constituted by SEBI. To discontinue the present limit of 75 days for carrying forward trades. To introduce specific eligibility criteria for scrips in the carry forward system both in the account period and rolling settlement as well as for scrips in the CNS.

4. The matter relating to partial relief from payment of turnover based fees to subsidiaries of small stock Exchanges was discussed and the Board agreed to the proposal to exclude the turnover of those sub-brokers who have paid registration fees as members of the regional Exchange in accordance with Regulation 10 Schedule III of SEBI (Stock Brokers & Sub-Brokers) Rules & Regulations 1992 (turnover based fee for five years and also block of five years fees) from the total turnover of the subsidiary. The payment of turnover based fees by the subsidiary would be subject to final decision of the court.

5. The Board considered the Memorandum regarding further empowering SEBI and it was decided that the Government could be requested to issue, if necessary an ordinance amending the SEBI and SCR Act on issues relating to:- making specific provision for impounding and disgorging ill-gotten profits or gains. enhancing monetary penalties commensurate with the gravity and the quantum of violation. Such penalties should extend upto three times of the quantum of contravention.   providing for monetary penalties for violation of unfair trade practices regulations, collective investment schemes providing for penalty where there is no specific penalty provided such as for non-compliances, non-disclosures etc. which may extend to 25 lakhs. incorporating a specific provision to compensate investors who have suffered on account of insider trading or market manipulation vi. impounding of documents issuing summons to persons who are not directly connected with securities market and who are relevant for investigation viii. issuing specific directions including interim directions to investors and issuers etc. compounding of offences making the Securities Appellate Tribunal multi-membered enhancing SCR Act penalties to 5 lakhs or three times of profits or losses ill-gotten or imprisonment for 2 years.

Volatility 6. The Board reviewed the volatility trends in the Indian capital markets particularly from January 2000. While the average volatility has increased in this period, it was noted that this is a part of international phenomenon, particularly due to increased influence of new economy stocks in the markets These stocks inherently have uncertainty element in the valuation leading to significant volatility.

7. The Board also took note of the measures taken in the form of margins including volatility margin, exposure limits, etc., which ensured overall safety even in volatile conditions. The average margin cover available with the exchanges is around 45% to 50%

8. The Board also took note of the relaxation in price band of 8% by further 4% after half an hour cooling period. This relaxation appears to be working well and helps in providing exit and flexibility in trading.

Primary Market 9. The Board reviewed the working of the Debenture Trustees and approved the following modifications to the SEBI(Debenture Trustees) Regulations and guidelines:- There should be "arms length relationship" between the issuer and the trustee. The trustee should not be associated or be a lender to the issuer company. In respect of existing cases where such relationship exists a transitional period of 2 years will be allowed for change of trustees. The offer document should specifically state the assets on which security is to be created and the ranking of charge. In the case of second charge or residual charge, the document should clearly mention the risk associated with such subsequent charge. The relevant consents for creation of security such as pari passu letter, consent of lessor of land etc. shall be obtained up-front before the issue and submitted to the Trustees appointed for the issue. The Trustees agreement where under the issuer agrees to create the security within a specified time frame shall be entered into before opening of the issue. The issue funds should be kept in an escrow account until the entire documentation is completed. I.e. security documents are executed. The offer document should mention the Security cover to be maintained. The basis for computation of the Security/asset cover, the valuation methods and periodicity should be disclosed. The asset cover should be arrived at after reduction of the liabilities having a first charge, in case the debentures are secured by a second or subsequent charge.  While the post issue lead manager and the registrar would be responsible for despatch of debenture certificates and refund orders, trustees would be responsible for despatch of certificates where an allotment letter is issued initially and debenture certificate is to be issued after registration of charge. Trustees should appoint nominee director on the board of the issuer in the event of 2 consequential defaults in payment of interest or default in creation of security or in redemption. The trustees shall periodically (atleast half yearly) communicate the status of compliance of the covenants and terms of issue, defaults if any, progress on action taken, to the debenture holders.   It has also been decided to recommend to the Department of Company Affairs that failure to create security within the specified time shall attract criminal liability on the officers in default and the company.

10. The Board approved the following modifications to SEBI (Disclosure and Investor Protection) Guidelines, 2000 : The entry norms would stand modified as follows ; IPOs of issue size upto 5 times the pre-issue networth shall be allowed only if the company has track record of profitability and networth as specified in the Guidelines. Companies not having track record as specified in the guidelines shall be eligible to make IPOs only through book building route. In such a case 60% of the issue size shall be allocated to 'Qualified Institutional Buyers' (QIBs). If this does not happen, the issue shall fail. IPOs of issue size more than 5 times the pre-issue networth and public issues by listed companies of more than 5 times the pre-issue networth shall be allowed only through book building route. In such a case 60% of the issue size shall be allocated to QIBs. If the institutional subscription is not received, the issue shall fail.

11. The lock in provisions applicable in respect of initial public offers have been rationalised to provide that the minimum promoters contribution of 20% shall be locked in for 3 years as at present and the balance of the entire pre IPO capital held by promoters or others (except shares allotted to registered Venture Capital Funds which will be subject to lock in as per the Venture Capital Guidelines) shall be locked in for 1 year from the date of allotment of the IPO.

12. The amount against promoters’ contribution brought in the form of cash either before or along with the issue shall be kept in a separate escrow account and released to the company with public issue proceeds. Notwithstanding the above, where the contribution has been brought prior to the issue and already deployed, a cash flow statement shall be given in the offer document disclosing the use of funds received against promoters’ contribution.

13. It is also decided to lock-in the shares issued on preferential basis by a listed companies to any person for a period of one year from the date of their allotment except such preferential issues which involved share swap for acquisition. This shall be over and above the 20% of total capital of the company held by the promoter being subject to lock in as stated in the Guidelines. It has also been decided to strengthen the disclosure requirements in the notice convening the General Meeting for the purpose of Preferential allotment and also extend the present disclosure requirement of utilisation of public issue proceeds to preferential offers also. The issuer and lead merchant banker is required to provide the basis for justification for the issue price and state so in the offer document. In the case of book built issues, the issuer/merchant banker in addition to providing the basis for justification shall also state that the final price has been determined on the basis of demand from investors. If the analysis of the lead merchant banker does not justify the issue price he cannot proceed with the issue.

14. It has been decided to rationalise the listing procedures to provide for in principle approval of stock exchanges prior to issue and to list and trade securities within 7 days from the date of allotment.

15. The requirement of incorporation of forecast of estimated profits for the current financial year shall be deleted from the DIP guidelines and issuers would be prohibited from giving estimated figures.

16. It has also been decided to allow companies to raise unsecured/subordinated debt instrument for providing mezannine capital provided these are subscribed by QIBs or where the debenture allottees/holders have given positive consent.