Shares And Stock Exchange
Stock Exchange
The market or place, where securities, viz. shares are exchange/traded or simply where buying and selling talks place, is called stock exchange or stock market.
Presently, the stock market in India consists of twenty three regional stock exchanges and two national exchanges, namely, the National Stock Exchange (NSE) And Over the Counter Exchange of India (OTC)
The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where maximum transactions, in terms of money and shares take place. The other major stock exchanges, are Calcutta, Madras and Delhi Stock Exchanges. Other one at Ahmedabad, Jaipur, Bangalore, Kanpur, Rajkot, Hyderabad, Cochin, Pune, Bhubaneshwar, Guwahti, Indore, Mangalore, Ludhiana, Patna, Saurashtra, Vadodara, Coimbatore, Meerut, and Surat.
Functioning of Stock Exchange
LISTING
Listing of shares, on a stock exchange, means, such shares can be bought and sold, in stock exchange.
A Company, which intends to issue shares, through prospectus, shall have to apply to one or more stock exchanges, for getting its shares listed.
The detailed and elaborate procedure of getting the shares listed on a stock exchange is monitored by SEBI. The SEBI, issues guidelines and notifications, from time to time, with regard to listing of securities.
Once the shares are listed, the are divided into two categories:
GROUP "A" SHARES
GROUP "B" SHARES
GROUP "A" SHARES: are referred to as " Cleaned Securities " or " specified shares". The facility for carrying forward a transaction from one account period to another is available for these shares. Group "A" shares represent companies, with huge amount of capital, and equally a large scope for investment. These shares are frequently traded and command higher price earning multiples.
GROUP "B" SHARES: are referred to as, Non cleaned securities or non-specified shares. For these groups facility of carrying forward is not available.
Whenever a share is moved from Group "B" to Group "A" its market price rises; likewise, when a share is shifted from Group "A" to Group "B", its market price declines. There are some criteria and guide lines, laid down by stock exchange, for shifting stocks from the non-specified list to the specified list.
VARIOUS ORDERS AND TRANSACTIONS:
SETTLEMENT CYCLES
There are various types of orders, which can be placed by the buyer or seller. They are:
Market Order
A market order is to be executed as soon as possible at the best prevailing price in the market.
Limit order
A limit order is constrained by the price limits specified by the investor. The seller specifies the minimum price that the security must fetch, and the buyer specifies the maximum price that he is willing to pay.
A Day order
A day order remains valid only for the day when it is placed. If the order is not executed on that day, it automatically lapses.
A Week order
A week order is one, which is active for a week
A Month order
A month order is an order, which is valid for one month.
An open order
An open order is an order, which is valid for one month. An open order remains in effect until it is executed or cancelled.
Similarly there are certain types of transactions, which are allowed on the stock exchanges. They are:
Transactions for Spot delivery
The delivery and payment is effected within the time or on the date stipulated when entering into the transaction or within fourteen days, whichever is shorter.
Transaction for Hand delivery
These transactions also referred to as the transaction for "the account", are cleared and settled through the clearing house.
Transactions for special delivery
The delivery and payment is effected within any time exceeding fourteen days following the date of the contact as may be stipulated when entering into the transaction, provided the same is permitted by the governing board or the president of the exchange.
How Does Trading Takes Place?
Trading of shares in a stock exchange takes place through Registered Stockbrokers, Transfer Agent etc.
Buyer gets in touch with a Broker, and gives him all the details of shares he wants to buy. Then the broker strikes a requisite deal and receives share certificate, and transfer form. After deducting, documents to the buyers.
As for seller, he also gets in touch with a broker and gives him details alongwith share certificates and transfer forms. Once the deal is struck, broker receives the payment and deducts his commission.
Each stock exchange has certain listed and permitted securities that are traded on its floor.
Floor Trading
Apart, from NSC, and OTC, trading takes place mainly through on open outcry system on the trading floor of the exchange during the official trading hours.
There are several "notional" trading posts for different securities where the buyer and seller get in contact with each other. These buyers and seller, are authorised Brokers or Agents or a shareholder. Buyer make their bids and sellers make their offers, and bargains are closed at the mutually agreed upon prices. In stock, where jobbing is done, the "jobber", plays an important role. This is floor trading, where buyer and seller transact face to face using a variety of signals.
Screen based Trading
In a screen-based system, the trading ring is replaced by the computer screen and distant participants can trade with each other through the computer network. A large number of participants, geographically separated can trade simultaneously at high speeds. The screen based trading systems
are of two types:
Quote Driven System, and
Order Driven System, and
Under the quote driven system for trading, market makes input two way quotes in the system. Market players, then contact the market makers over telephone, negotiable, and trace. Under the order driven system, client place their orders with the brokers, which are then fed, into the system. These are then automatically matched according to certain rules.
Procedure with Regard to Transfer of Shares
Transfer of shares, is one of the most important right, of a member. Even Articles of Association, of a company, cannot take away this right, although it can place certain restrictions on transfer of shares.
One of the common restriction on transfer in a private company is the pre-emption clause which states that the intending transfer, must first after the shares to the existing members of the company, so long as a member can be found to purchase them at a fair price.
Transfer of shares, involves, two types of transaction, namely:
Buying of shares, i.e. transferee
Selling of shares, i.e. transferor
BUYING OF SHARES
Shares may be brought directly, from the seller, or through a broker. Generally, shares are brought, through a broker in stock exchange, as it is not possible for buyer and seller to come in direct content, because of voluminous trading.
Thus the first method is locate a broker.
Then, the buyer gives all the details to the broker, regarding:
the name of company of which he wants to buy shares,
maximum price at which he is willing to buy,
Commission to be paid to broker and any advance money.
Number of shares to be purchased.
All these are negotiable, as the buyer may change his opinion, on an advice given by broker.
Then, the broker, will hunt for the shares, the buyer wants to buy, at quoted price. The buying may take place on the trading floor of stock exchange, or at any other place. Once the order is fulfilled, broker will send a "contact rate" to the buyer, containing details and specifications.
Share certificates will be received by the broker, through clearing house of the stock exchange, or directly from the selling broker. This certificate will be duly accompanied by a transfer deed signed by transferor, and stamped, and authenticated by a witness.
When, the share certificate is delivered to the buyer; he will pay the balance money (purchase consideration) to the broker.
If buyer wants to retain the shares, he will then fill up the transfer deed, stamp them properly, and shall lodge the share certificates and transfer deeds with the company.
Finally after scrutinizing, the transfer deed, and share certificate, the company will register the name of transferee in register of members, as a member. On completion of this, the transferee acquires the status of member.
A buyer who does not wish to retain the shares, and wants to sell them further, may ask for a "Blank Transfer form" from the transfer, which will not have name a of transferee. This enables the buyer to further sell it. This practice is common to stock exchange.
SELLING OF SHARES
The seller may directly sell the shares, to a buyer, but here also, it is generally preferred to image services of broker.
An Order , i.e. "Sale order" will be placed, alongwith:-
Share Certificate
Transfer deed, and
Details like minimum price etc.
On receiving, all such things, the broker will hunt for a buyer, and strike the deal over the trading floor of stock exchange or at any other place.
Once the negotiations are complete, broker will hand over the share certificate, and transfer form to the buyer, and take the payment.
Finally, the payment will be handed over to the seller, after deducting commission.
If, seller was a member of the company, his name will be struck off, from the register of member, once; company receives the share certificates and transfer forms.
Procedure/Steps to be Followed By The Company with Regard to Transfer of Shares
REGISTRATION OF TRANSFER
The company shall register transfer of shares, only when:
Proper Instrument of transfer, has been duly stamped
It has been properly executed b transferor, and transferee
Name, address and occupation of transferee has been delivered to the company.
Share certificate or letter of allotment has been delivered alongwith instrument of transfer.
Central Government has prescribed the form for transfer, which should be used in the case of all transfers of shares of a company, including a private company. The form contains the entire particular required.
ACKNOWLEDGE
When, the company received all the requisite documents it generally gives an acknowledgement for the same.
-If the instrument of transfer is received from a person other than the transferor and the shares are partly paid -up, the company has to send a notice to the transferee, and it may also send a notice to the transferor.
TIME LIMIT
Before effecting any transfer, the company should ensure that the instrument is lodged within the time limit as follows:
SHARES TRANSFERRED THROUGH A PRESCRIBED FORM
SHARES DEALT IN OR QUOTED ON A STOCK EXCHANGE
Instrument of transfer, alongwith requisite documents, should be delivered, at any time before the date on which the register of members in closed, for the first time after the date of the presentation of the prescribed form before the prescribed authority.Or
Within twelve months from the date of such presentation, whichever is later.
IN OTHER CASE: (i.e. where shares are not quoted on a stock exchange)
In such a case, within two months from the date of such presentation.
The above said time limit is only where shares are transferred through a "Prescribed form"
SHARES TRANSFERRED THROUGH UNPRESCRIBED FORM
In such cases, the instrument of transfer, alongwith documents should be delivered within the expiry of six months from the date on which the register of members is closed.
Such period as stated above can be extended, by making an application to central government.
IF TRANSFEREE IS MINOR
If, transferee is a minor, transfer of shares is to be effected in accordance with the provisions of the Articles of Association of the company, where shares to be transferred are fully paid-up, there is no problem for companies to register the same. In favour of minors through guardian.
After making through scrutiny the officer in charge will put his initial on the form and the particulars of the transfer instrument will be entered in the Shares Transfer Register.
At periodic intervals, the Share Transfer Register, alongwith necessary document will be put up before Board or Committee, and they shall initial the Share Transfer Register for having approved the transfer. The date of approval of the transfer will be indicated in the register.
Where transfers are duly approved, endorsements will be made on the share certificates in favour of the transferees and will be certified by company secretary or an officer authorised by the Board in this behalf. After doing so, the share Certificates will be returned to the sender alongwith a covering letter. Where new certificates are to be issued, they have to be issued in conformity with the companies ( issue of share certificates) Rules, 1960
Finally necessary entries shall be made in the Register of Members in regard to the transferor and the transferee.
If the company refuses to register the transfer of shares, it shall send a notice intimating the refusal to the transferor and transferee.
-On entry of the transferee's name in "Register of Members", he becomes entitled to dividend and other bonus or share in surplus, as may be declared.
Right Of Transferee On Shares Pending Registration Of Transfers.
Generally entries n the "Register of Members "may take some time. However, the transferee's right to dividend, Bonus Shares, Right shares etc, stands fully protected. However, the transfer deed must have been delivered to the company before the record date or book closure; otherwise this benefit would be lost. It should be noted that the transferee can get the dividend in respect of shares under transfer, only if he secures a mandate therefore from the transferor and produces the same before the company (sect 206 A)
Where dividend has already been declared, the transferee (buyer, whose name is not registered), may lodge the shares and other relevant documents, with the company, for being registered in his name, within 15 days from the date when dividend became due.
Stamp Duty on Transfer
Before the instrument of transfer is lodged with a company, it should be duly stamped, according to the Indian Stamp Act, 1899.
This is a Central Act, which all the states have adopted with modifications to suit their requirement.
In regard to share transfers, the levy of stamp duty has been allocated, by schedule VII, Entry 91, appended to the "constitution of India", and therefore only the Central Government can levy stamp duty on share transfers.
AMOUNT (entry 62, schedule I, of Indian stamp act, 1899)
The Government has prescribed a stamp duty of, Rs.0.75 for every hundred rupees (100 RS.) or part thereof the value of the share, i.e. the price at which shares were brought (commission price), and not the face value of shares under transfer.
Violation of this provision will attract penal provisions to the company, under stamp Act.
In case of gift of shares there is a necessity to mention the consideration as the shares are being transferred free of consideration. However, stamp duty thereon will have to be paid on the basis of the market value of the shares on the date of the gift.
HOW IS THE INSTRUMENT IS TO BE STAMPED?
The stamp duty on the share transfer is payable by affixing on the instrument special adhesive stamps bearing the inscription "store Transfer". The stamps affixed on an investment of transfer should be cancelled before it is lodged with the company. Cancellation can be done by the transferor by signing across the stamp or in any other manner to ensure that the stamp cannot be used once again.
The stamping has to be done by transferor unless there is a contract to the contrary.
Refusal By Company to Register The Transfer of Shares
When Company has a right to refuse
The circumstances, in which a company may refuse to register the transfer of shares, are different, for company listed on stock exchange and unlisted company.
LISTED COMPANY
Where the instrument of transfer is not properly signed or stamped or not properly executed.
Where the transfer of security is in contravention of any law composition of
Where the Board of Director, may change, to such on extent, because of transfer, which may affect interest of company.
Where the transfer is prohibited by any law.
UNLISTED COMPANIES
If partly paid up shares are being transferred and the transferee is known to be financially incapable of paying balance calls.
If partly paid up shares are being transferred to a minor incapable of entering into a contract.
In case due call money has not been paid by the transferor.
When the transferor is a debtor of the company, and the company has a lien on such shares.
If instrument is incomplete, irregular and defective, and not properly stamped.
On other reasons, just and equitable and are in the general interests of the company.
ACTION BY MEMBERS
Obligation of company to intimate
WHERE REFUSAL TO REGISTER IS DUE TO TECHNICAL DEFECTS
In cases of technical defects, like improperly stamped, not duly executed etc, the Board of Director, have to intimate the transferee, within two months from the date of lodging the transfer deed in the prescribed form about the requirements of law which has to be completed or complied with for securing registration.
Where the transfer deed is time-banned, say it has not been delivered to the company within a period of 12 months from the date of endorsement by the prescribed authority, the instrument of transfer is to be revalidated.
For revalidating the instrument on application is to be made in form no. 7 C to the Registrar of Companies, alongwith instrument of transfer, and prescribed fees.
WHERE REFUSAL IS DUE TO OTHER REASONS
Other reasons means
Transfer of security is in contravention of any law, or
Likely change in composition of Board of Directors which might be prejudicial to the interest of company
In such cases, the company is under a legal obligation to make a reference to the company Law Board and forward copies of such reference to both the transferor and transferee.
The transferor and transferee would be given an opportunity of making representation, if any, in writing, where after the Company Law Board would direct that the shares be either registered or not registered by the company.
Where the order directs registration of transfer, the company is found to give effect to the registration within 10 days of the receipt of order of the Company Law Board.
On the other hand, where the company Law Board has directed that the transfer of shares need not be registered, the company is obliged to intimate the transferor and transferee within 10 days of such direction.
Appeal Against Refusal
Notice about refusal to register the shares, must be given by the company to the transferor and transferee, within two months, to the transferor and transferee. Company shall also intimate the reasons for refusal.
Transferor or transferee, may appeal to the Company Law Board (CLB) in Form No. 1, as specified in CLB regulations, 1991, within two months of the receipt of notice of such refusal, or
Where the company has sent no notice, within four months from the date on which the instrument of transfer was delivered to the company.
Company Law Board, after hearing the parties, may pass any of the following orders.
Dismiss the appeal, or
Direct that transfer shall be registered within 10 days of he receipt of order, or
Direct the rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved, or
May grant any interim injunction or stay, or
Incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
In case of any default by the company, in complying with the orders of Company Law Board, the company ordinary defaulting officers may be fined in monetary terms.
I.P.O.'S (Initial Public Offer)
A Company proposing to raise resources by a public issue should first select the type of securities i.e. share and /or debentures to be issued by it. The decision regarding the issue of shares to be made at par or premium should be decided keeping in view the SEBI guidelines.
The whole process of issue of shares can be divided into two parts:
Pre issue activities, and
Post issue activities
All activities beginning with the planning of capital issues, till the opening of the subscription list are pre issue activities, while all activities subsequent to the opening of the subscription list may be called post issue activities.
The various steps involved in public issue of shares are enumerated below:
COMPLIANCE WITH THE SEBI GUIDELINES
Before making any issue of capital, it is to be ensured that the proposed issue complies with the provision of the SEBI guideline for disclosure and investor protection with regards to Pricing of issue, promoters, Contribution, lock in period, reservation, etc.
HOLDING OF GENERAL MEETING
If it is required by the Articles of Association, that consent of shareholder is to be obtained, then meeting of the shareholder will be called.
INTIMATION TO STOCK EXCHANGE
A copy of the Memorandum and Articles of Association of the company is to be sent to the Stock Exchanges where the shares are to be listed, for approval.
APPOINTMENT
A Company, which issues shares, has to appoint one or more Merchant Bankers, who act as Lead Managers to the public issue. The company may, also appoint Registrars, underwriter, brokers etc
DRAFTING OF PROSPECTUS
Apart from the notice of offer to issue shares to public prospectus should also disclose:
Justification of Premium, if called.
Net Asset value (NAV)
High and Low price of the shares of the company for the last two years.
Highlights of the issue, as well as the "Risk Factors".
A clause that company shall refund the entire application money if minimum subscription is not received.
A statement by the lead managers that in their opinion the assets of the underwriters are adequate to meet their obligations.
APPROVAL OF PROSPECTUS
The draft prospectus alongwith the application form for issue of shares should be approved by the solicitors/legal advisors/stock exchange & [where application has been made seeking permission for shares to be draft in] of the company to ensure that it contains all disclosures and information as required by various statutes, rules, notifications, etc.
APPROVAL OF BOARD OF DIRECTORS
After the concerned parties / agencies have approved the draft prospectus and the application form, the board of directors of the company should approve the final draft, before filing with the Registrar of companies.
REGISTRATION OF PROPECTUS WITH ROC
Before the prospectus is issued to the public it must be filed with the Registrar of companies, duly signed thereon by every director or proposed director of the company.
The prospectus must be registered with ROC within 3 months of vetting by SEBI.
APPLICATION TO STOCK EXCHANGE TO LIST SHARES
Before filing prospectus with the Registrar of companies, the company should submit on application to the Stock Exchange (s) for enlistment of securities offered to the public by the said issue. The fact that an application has/have been made to the stock exchange must be stated in the prospectus.
PRINTING AND DISTRIBUTION OF PROSPECTUS AND APPLICATION FORMS
After Receipt of Acknowledgement card from the SEBI and the intimation from Registrar of Companies regarding registration of prospectus, the company should take steps to issue the prospectus within 90 days of it's registration with ROC
For this compliance, requisite steps for printing and distribution amongst Banker, Underwriter public etc. should be made.
ANNOUNCEMENT AND ADVERTISEMENT
Announcement regarding the proposed issue should be made at least ten (10) days before the subscription list opens.
No advertisement should include Brand Names for the issue except the normal commercial name of the company or commercial brand names of the company or commercial brand names of it's products already in use.
SUBSCRIPTION LIST
As stipulated by SEBI guidelines the subscription list for public issue is to be kept open for atleast 3 working days and for a total period of not exceeding 10 working days, which is to be disclosed in prospectus as well.
SEPARATE BANK ACCOUNT
A SEPARATE Bank account is opened for the purpose of collecting the proceeds of the issue.
Further, the date of opening and closing of the subscription list should be intimated to all the collecting and controlling branches of the bank with whom the company has entered into an agreement for the collection of application forms.
MINIMUM SUBSCRIPTION
As per the SEBI guidelines, if the company does not receive 90% of the issue amount from the public subscription including development from underwriters within 120 days from the date of the issue, the amount of subscription received is required to be refunded to the applications. In case of disputed development also, subscription is required to be refunded if 90% of the issued amount plus accepted
Development from underwriters if any is not received within 120 days of the issue of prospectus. All money received from the applicants for shares is required to be repaid forthwith without interest and if any such money is not so repaid in the next 10 days (after the expiry of 120 days), the directors of the company are jointly and severally liable to repay that money, with interest from the expiry of the 130 days.
The company should refund the amount within 10 weeks of the closing of the subscription list and pay interest, if refunds are delayed by more than 8 days after this period.
ALLOTMENT OF SHARES
A return of allotment in Form no.--- 2 of the companies (central government's) General Rules and Form, 1956 should be filed with Registrar of companies within 30 days of the date of allotment alongiwith the fees payable, as prescribed in schedule X of the Act.
In case, the issue is over-subscribed, the basis of allotment has to be decided in consultation with the stock exchange authorities as per the guidelines laid down by the stock exchanges.
OVER SUBSCRIPTION
The Over-subscribed amount should after the finalisation of allotment, be refunded to the applicants within 10 weeks of the closure of subscription list. If the money is not so refunded, the company is liable to refund the money with interest as specified from the expiry of the 8 days after 10 weeks of the closure of subscription list.
COMPLIANCE REPORT
As stipulated by SEBI guidelines within 45 days of the closure of issue, a report in the prescribed form alongwith a compliance certificate from statutory auditor/ practicing charted accountant or by a company secretary in practice is to be forwarded to SEBI by the lead managers.
ISSUANCE OF SHARE CERTIFICATES
As per section 113, the company should deliver the share certificate within 3 months after the allotment of shares.
The market or place, where securities, viz. shares are exchange/traded or simply where buying and selling talks place, is called stock exchange or stock market.
Presently, the stock market in India consists of twenty three regional stock exchanges and two national exchanges, namely, the National Stock Exchange (NSE) And Over the Counter Exchange of India (OTC)
The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where maximum transactions, in terms of money and shares take place. The other major stock exchanges, are Calcutta, Madras and Delhi Stock Exchanges. Other one at Ahmedabad, Jaipur, Bangalore, Kanpur, Rajkot, Hyderabad, Cochin, Pune, Bhubaneshwar, Guwahti, Indore, Mangalore, Ludhiana, Patna, Saurashtra, Vadodara, Coimbatore, Meerut, and Surat.
Functioning of Stock Exchange
LISTING
Listing of shares, on a stock exchange, means, such shares can be bought and sold, in stock exchange.
A Company, which intends to issue shares, through prospectus, shall have to apply to one or more stock exchanges, for getting its shares listed.
The detailed and elaborate procedure of getting the shares listed on a stock exchange is monitored by SEBI. The SEBI, issues guidelines and notifications, from time to time, with regard to listing of securities.
Once the shares are listed, the are divided into two categories:
GROUP "A" SHARES
GROUP "B" SHARES
GROUP "A" SHARES: are referred to as " Cleaned Securities " or " specified shares". The facility for carrying forward a transaction from one account period to another is available for these shares. Group "A" shares represent companies, with huge amount of capital, and equally a large scope for investment. These shares are frequently traded and command higher price earning multiples.
GROUP "B" SHARES: are referred to as, Non cleaned securities or non-specified shares. For these groups facility of carrying forward is not available.
Whenever a share is moved from Group "B" to Group "A" its market price rises; likewise, when a share is shifted from Group "A" to Group "B", its market price declines. There are some criteria and guide lines, laid down by stock exchange, for shifting stocks from the non-specified list to the specified list.
VARIOUS ORDERS AND TRANSACTIONS:
SETTLEMENT CYCLES
There are various types of orders, which can be placed by the buyer or seller. They are:
Market Order
A market order is to be executed as soon as possible at the best prevailing price in the market.
Limit order
A limit order is constrained by the price limits specified by the investor. The seller specifies the minimum price that the security must fetch, and the buyer specifies the maximum price that he is willing to pay.
A Day order
A day order remains valid only for the day when it is placed. If the order is not executed on that day, it automatically lapses.
A Week order
A week order is one, which is active for a week
A Month order
A month order is an order, which is valid for one month.
An open order
An open order is an order, which is valid for one month. An open order remains in effect until it is executed or cancelled.
Similarly there are certain types of transactions, which are allowed on the stock exchanges. They are:
Transactions for Spot delivery
The delivery and payment is effected within the time or on the date stipulated when entering into the transaction or within fourteen days, whichever is shorter.
Transaction for Hand delivery
These transactions also referred to as the transaction for "the account", are cleared and settled through the clearing house.
Transactions for special delivery
The delivery and payment is effected within any time exceeding fourteen days following the date of the contact as may be stipulated when entering into the transaction, provided the same is permitted by the governing board or the president of the exchange.
How Does Trading Takes Place?
Trading of shares in a stock exchange takes place through Registered Stockbrokers, Transfer Agent etc.
Buyer gets in touch with a Broker, and gives him all the details of shares he wants to buy. Then the broker strikes a requisite deal and receives share certificate, and transfer form. After deducting, documents to the buyers.
As for seller, he also gets in touch with a broker and gives him details alongwith share certificates and transfer forms. Once the deal is struck, broker receives the payment and deducts his commission.
Each stock exchange has certain listed and permitted securities that are traded on its floor.
Floor Trading
Apart, from NSC, and OTC, trading takes place mainly through on open outcry system on the trading floor of the exchange during the official trading hours.
There are several "notional" trading posts for different securities where the buyer and seller get in contact with each other. These buyers and seller, are authorised Brokers or Agents or a shareholder. Buyer make their bids and sellers make their offers, and bargains are closed at the mutually agreed upon prices. In stock, where jobbing is done, the "jobber", plays an important role. This is floor trading, where buyer and seller transact face to face using a variety of signals.
Screen based Trading
In a screen-based system, the trading ring is replaced by the computer screen and distant participants can trade with each other through the computer network. A large number of participants, geographically separated can trade simultaneously at high speeds. The screen based trading systems
are of two types:
Quote Driven System, and
Order Driven System, and
Under the quote driven system for trading, market makes input two way quotes in the system. Market players, then contact the market makers over telephone, negotiable, and trace. Under the order driven system, client place their orders with the brokers, which are then fed, into the system. These are then automatically matched according to certain rules.
Procedure with Regard to Transfer of Shares
Transfer of shares, is one of the most important right, of a member. Even Articles of Association, of a company, cannot take away this right, although it can place certain restrictions on transfer of shares.
One of the common restriction on transfer in a private company is the pre-emption clause which states that the intending transfer, must first after the shares to the existing members of the company, so long as a member can be found to purchase them at a fair price.
Transfer of shares, involves, two types of transaction, namely:
Buying of shares, i.e. transferee
Selling of shares, i.e. transferor
BUYING OF SHARES
Shares may be brought directly, from the seller, or through a broker. Generally, shares are brought, through a broker in stock exchange, as it is not possible for buyer and seller to come in direct content, because of voluminous trading.
Thus the first method is locate a broker.
Then, the buyer gives all the details to the broker, regarding:
the name of company of which he wants to buy shares,
maximum price at which he is willing to buy,
Commission to be paid to broker and any advance money.
Number of shares to be purchased.
All these are negotiable, as the buyer may change his opinion, on an advice given by broker.
Then, the broker, will hunt for the shares, the buyer wants to buy, at quoted price. The buying may take place on the trading floor of stock exchange, or at any other place. Once the order is fulfilled, broker will send a "contact rate" to the buyer, containing details and specifications.
Share certificates will be received by the broker, through clearing house of the stock exchange, or directly from the selling broker. This certificate will be duly accompanied by a transfer deed signed by transferor, and stamped, and authenticated by a witness.
When, the share certificate is delivered to the buyer; he will pay the balance money (purchase consideration) to the broker.
If buyer wants to retain the shares, he will then fill up the transfer deed, stamp them properly, and shall lodge the share certificates and transfer deeds with the company.
Finally after scrutinizing, the transfer deed, and share certificate, the company will register the name of transferee in register of members, as a member. On completion of this, the transferee acquires the status of member.
A buyer who does not wish to retain the shares, and wants to sell them further, may ask for a "Blank Transfer form" from the transfer, which will not have name a of transferee. This enables the buyer to further sell it. This practice is common to stock exchange.
SELLING OF SHARES
The seller may directly sell the shares, to a buyer, but here also, it is generally preferred to image services of broker.
An Order , i.e. "Sale order" will be placed, alongwith:-
Share Certificate
Transfer deed, and
Details like minimum price etc.
On receiving, all such things, the broker will hunt for a buyer, and strike the deal over the trading floor of stock exchange or at any other place.
Once the negotiations are complete, broker will hand over the share certificate, and transfer form to the buyer, and take the payment.
Finally, the payment will be handed over to the seller, after deducting commission.
If, seller was a member of the company, his name will be struck off, from the register of member, once; company receives the share certificates and transfer forms.
Procedure/Steps to be Followed By The Company with Regard to Transfer of Shares
REGISTRATION OF TRANSFER
The company shall register transfer of shares, only when:
Proper Instrument of transfer, has been duly stamped
It has been properly executed b transferor, and transferee
Name, address and occupation of transferee has been delivered to the company.
Share certificate or letter of allotment has been delivered alongwith instrument of transfer.
Central Government has prescribed the form for transfer, which should be used in the case of all transfers of shares of a company, including a private company. The form contains the entire particular required.
ACKNOWLEDGE
When, the company received all the requisite documents it generally gives an acknowledgement for the same.
-If the instrument of transfer is received from a person other than the transferor and the shares are partly paid -up, the company has to send a notice to the transferee, and it may also send a notice to the transferor.
TIME LIMIT
Before effecting any transfer, the company should ensure that the instrument is lodged within the time limit as follows:
SHARES TRANSFERRED THROUGH A PRESCRIBED FORM
SHARES DEALT IN OR QUOTED ON A STOCK EXCHANGE
Instrument of transfer, alongwith requisite documents, should be delivered, at any time before the date on which the register of members in closed, for the first time after the date of the presentation of the prescribed form before the prescribed authority.Or
Within twelve months from the date of such presentation, whichever is later.
IN OTHER CASE: (i.e. where shares are not quoted on a stock exchange)
In such a case, within two months from the date of such presentation.
The above said time limit is only where shares are transferred through a "Prescribed form"
SHARES TRANSFERRED THROUGH UNPRESCRIBED FORM
In such cases, the instrument of transfer, alongwith documents should be delivered within the expiry of six months from the date on which the register of members is closed.
Such period as stated above can be extended, by making an application to central government.
IF TRANSFEREE IS MINOR
If, transferee is a minor, transfer of shares is to be effected in accordance with the provisions of the Articles of Association of the company, where shares to be transferred are fully paid-up, there is no problem for companies to register the same. In favour of minors through guardian.
After making through scrutiny the officer in charge will put his initial on the form and the particulars of the transfer instrument will be entered in the Shares Transfer Register.
At periodic intervals, the Share Transfer Register, alongwith necessary document will be put up before Board or Committee, and they shall initial the Share Transfer Register for having approved the transfer. The date of approval of the transfer will be indicated in the register.
Where transfers are duly approved, endorsements will be made on the share certificates in favour of the transferees and will be certified by company secretary or an officer authorised by the Board in this behalf. After doing so, the share Certificates will be returned to the sender alongwith a covering letter. Where new certificates are to be issued, they have to be issued in conformity with the companies ( issue of share certificates) Rules, 1960
Finally necessary entries shall be made in the Register of Members in regard to the transferor and the transferee.
If the company refuses to register the transfer of shares, it shall send a notice intimating the refusal to the transferor and transferee.
-On entry of the transferee's name in "Register of Members", he becomes entitled to dividend and other bonus or share in surplus, as may be declared.
Right Of Transferee On Shares Pending Registration Of Transfers.
Generally entries n the "Register of Members "may take some time. However, the transferee's right to dividend, Bonus Shares, Right shares etc, stands fully protected. However, the transfer deed must have been delivered to the company before the record date or book closure; otherwise this benefit would be lost. It should be noted that the transferee can get the dividend in respect of shares under transfer, only if he secures a mandate therefore from the transferor and produces the same before the company (sect 206 A)
Where dividend has already been declared, the transferee (buyer, whose name is not registered), may lodge the shares and other relevant documents, with the company, for being registered in his name, within 15 days from the date when dividend became due.
Stamp Duty on Transfer
Before the instrument of transfer is lodged with a company, it should be duly stamped, according to the Indian Stamp Act, 1899.
This is a Central Act, which all the states have adopted with modifications to suit their requirement.
In regard to share transfers, the levy of stamp duty has been allocated, by schedule VII, Entry 91, appended to the "constitution of India", and therefore only the Central Government can levy stamp duty on share transfers.
AMOUNT (entry 62, schedule I, of Indian stamp act, 1899)
The Government has prescribed a stamp duty of, Rs.0.75 for every hundred rupees (100 RS.) or part thereof the value of the share, i.e. the price at which shares were brought (commission price), and not the face value of shares under transfer.
Violation of this provision will attract penal provisions to the company, under stamp Act.
In case of gift of shares there is a necessity to mention the consideration as the shares are being transferred free of consideration. However, stamp duty thereon will have to be paid on the basis of the market value of the shares on the date of the gift.
HOW IS THE INSTRUMENT IS TO BE STAMPED?
The stamp duty on the share transfer is payable by affixing on the instrument special adhesive stamps bearing the inscription "store Transfer". The stamps affixed on an investment of transfer should be cancelled before it is lodged with the company. Cancellation can be done by the transferor by signing across the stamp or in any other manner to ensure that the stamp cannot be used once again.
The stamping has to be done by transferor unless there is a contract to the contrary.
Refusal By Company to Register The Transfer of Shares
When Company has a right to refuse
The circumstances, in which a company may refuse to register the transfer of shares, are different, for company listed on stock exchange and unlisted company.
LISTED COMPANY
Where the instrument of transfer is not properly signed or stamped or not properly executed.
Where the transfer of security is in contravention of any law composition of
Where the Board of Director, may change, to such on extent, because of transfer, which may affect interest of company.
Where the transfer is prohibited by any law.
UNLISTED COMPANIES
If partly paid up shares are being transferred and the transferee is known to be financially incapable of paying balance calls.
If partly paid up shares are being transferred to a minor incapable of entering into a contract.
In case due call money has not been paid by the transferor.
When the transferor is a debtor of the company, and the company has a lien on such shares.
If instrument is incomplete, irregular and defective, and not properly stamped.
On other reasons, just and equitable and are in the general interests of the company.
ACTION BY MEMBERS
Obligation of company to intimate
WHERE REFUSAL TO REGISTER IS DUE TO TECHNICAL DEFECTS
In cases of technical defects, like improperly stamped, not duly executed etc, the Board of Director, have to intimate the transferee, within two months from the date of lodging the transfer deed in the prescribed form about the requirements of law which has to be completed or complied with for securing registration.
Where the transfer deed is time-banned, say it has not been delivered to the company within a period of 12 months from the date of endorsement by the prescribed authority, the instrument of transfer is to be revalidated.
For revalidating the instrument on application is to be made in form no. 7 C to the Registrar of Companies, alongwith instrument of transfer, and prescribed fees.
WHERE REFUSAL IS DUE TO OTHER REASONS
Other reasons means
Transfer of security is in contravention of any law, or
Likely change in composition of Board of Directors which might be prejudicial to the interest of company
In such cases, the company is under a legal obligation to make a reference to the company Law Board and forward copies of such reference to both the transferor and transferee.
The transferor and transferee would be given an opportunity of making representation, if any, in writing, where after the Company Law Board would direct that the shares be either registered or not registered by the company.
Where the order directs registration of transfer, the company is found to give effect to the registration within 10 days of the receipt of order of the Company Law Board.
On the other hand, where the company Law Board has directed that the transfer of shares need not be registered, the company is obliged to intimate the transferor and transferee within 10 days of such direction.
Appeal Against Refusal
Notice about refusal to register the shares, must be given by the company to the transferor and transferee, within two months, to the transferor and transferee. Company shall also intimate the reasons for refusal.
Transferor or transferee, may appeal to the Company Law Board (CLB) in Form No. 1, as specified in CLB regulations, 1991, within two months of the receipt of notice of such refusal, or
Where the company has sent no notice, within four months from the date on which the instrument of transfer was delivered to the company.
Company Law Board, after hearing the parties, may pass any of the following orders.
Dismiss the appeal, or
Direct that transfer shall be registered within 10 days of he receipt of order, or
Direct the rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved, or
May grant any interim injunction or stay, or
Incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
In case of any default by the company, in complying with the orders of Company Law Board, the company ordinary defaulting officers may be fined in monetary terms.
I.P.O.'S (Initial Public Offer)
A Company proposing to raise resources by a public issue should first select the type of securities i.e. share and /or debentures to be issued by it. The decision regarding the issue of shares to be made at par or premium should be decided keeping in view the SEBI guidelines.
The whole process of issue of shares can be divided into two parts:
Pre issue activities, and
Post issue activities
All activities beginning with the planning of capital issues, till the opening of the subscription list are pre issue activities, while all activities subsequent to the opening of the subscription list may be called post issue activities.
The various steps involved in public issue of shares are enumerated below:
COMPLIANCE WITH THE SEBI GUIDELINES
Before making any issue of capital, it is to be ensured that the proposed issue complies with the provision of the SEBI guideline for disclosure and investor protection with regards to Pricing of issue, promoters, Contribution, lock in period, reservation, etc.
HOLDING OF GENERAL MEETING
If it is required by the Articles of Association, that consent of shareholder is to be obtained, then meeting of the shareholder will be called.
INTIMATION TO STOCK EXCHANGE
A copy of the Memorandum and Articles of Association of the company is to be sent to the Stock Exchanges where the shares are to be listed, for approval.
APPOINTMENT
A Company, which issues shares, has to appoint one or more Merchant Bankers, who act as Lead Managers to the public issue. The company may, also appoint Registrars, underwriter, brokers etc
DRAFTING OF PROSPECTUS
Apart from the notice of offer to issue shares to public prospectus should also disclose:
Justification of Premium, if called.
Net Asset value (NAV)
High and Low price of the shares of the company for the last two years.
Highlights of the issue, as well as the "Risk Factors".
A clause that company shall refund the entire application money if minimum subscription is not received.
A statement by the lead managers that in their opinion the assets of the underwriters are adequate to meet their obligations.
APPROVAL OF PROSPECTUS
The draft prospectus alongwith the application form for issue of shares should be approved by the solicitors/legal advisors/stock exchange & [where application has been made seeking permission for shares to be draft in] of the company to ensure that it contains all disclosures and information as required by various statutes, rules, notifications, etc.
APPROVAL OF BOARD OF DIRECTORS
After the concerned parties / agencies have approved the draft prospectus and the application form, the board of directors of the company should approve the final draft, before filing with the Registrar of companies.
REGISTRATION OF PROPECTUS WITH ROC
Before the prospectus is issued to the public it must be filed with the Registrar of companies, duly signed thereon by every director or proposed director of the company.
The prospectus must be registered with ROC within 3 months of vetting by SEBI.
APPLICATION TO STOCK EXCHANGE TO LIST SHARES
Before filing prospectus with the Registrar of companies, the company should submit on application to the Stock Exchange (s) for enlistment of securities offered to the public by the said issue. The fact that an application has/have been made to the stock exchange must be stated in the prospectus.
PRINTING AND DISTRIBUTION OF PROSPECTUS AND APPLICATION FORMS
After Receipt of Acknowledgement card from the SEBI and the intimation from Registrar of Companies regarding registration of prospectus, the company should take steps to issue the prospectus within 90 days of it's registration with ROC
For this compliance, requisite steps for printing and distribution amongst Banker, Underwriter public etc. should be made.
ANNOUNCEMENT AND ADVERTISEMENT
Announcement regarding the proposed issue should be made at least ten (10) days before the subscription list opens.
No advertisement should include Brand Names for the issue except the normal commercial name of the company or commercial brand names of the company or commercial brand names of it's products already in use.
SUBSCRIPTION LIST
As stipulated by SEBI guidelines the subscription list for public issue is to be kept open for atleast 3 working days and for a total period of not exceeding 10 working days, which is to be disclosed in prospectus as well.
SEPARATE BANK ACCOUNT
A SEPARATE Bank account is opened for the purpose of collecting the proceeds of the issue.
Further, the date of opening and closing of the subscription list should be intimated to all the collecting and controlling branches of the bank with whom the company has entered into an agreement for the collection of application forms.
MINIMUM SUBSCRIPTION
As per the SEBI guidelines, if the company does not receive 90% of the issue amount from the public subscription including development from underwriters within 120 days from the date of the issue, the amount of subscription received is required to be refunded to the applications. In case of disputed development also, subscription is required to be refunded if 90% of the issued amount plus accepted
Development from underwriters if any is not received within 120 days of the issue of prospectus. All money received from the applicants for shares is required to be repaid forthwith without interest and if any such money is not so repaid in the next 10 days (after the expiry of 120 days), the directors of the company are jointly and severally liable to repay that money, with interest from the expiry of the 130 days.
The company should refund the amount within 10 weeks of the closing of the subscription list and pay interest, if refunds are delayed by more than 8 days after this period.
ALLOTMENT OF SHARES
A return of allotment in Form no.--- 2 of the companies (central government's) General Rules and Form, 1956 should be filed with Registrar of companies within 30 days of the date of allotment alongiwith the fees payable, as prescribed in schedule X of the Act.
In case, the issue is over-subscribed, the basis of allotment has to be decided in consultation with the stock exchange authorities as per the guidelines laid down by the stock exchanges.
OVER SUBSCRIPTION
The Over-subscribed amount should after the finalisation of allotment, be refunded to the applicants within 10 weeks of the closure of subscription list. If the money is not so refunded, the company is liable to refund the money with interest as specified from the expiry of the 8 days after 10 weeks of the closure of subscription list.
COMPLIANCE REPORT
As stipulated by SEBI guidelines within 45 days of the closure of issue, a report in the prescribed form alongwith a compliance certificate from statutory auditor/ practicing charted accountant or by a company secretary in practice is to be forwarded to SEBI by the lead managers.
ISSUANCE OF SHARE CERTIFICATES
As per section 113, the company should deliver the share certificate within 3 months after the allotment of shares.
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