SECONDARY MARKET TRANSACTIONS

SECONDARY MARKET TRANSACTIONS (Part 1)

Key Concept 1: Introduction to Secondary Market Transactions

Definition: The secondary market is a platform where existing securities are traded among investors, providing a mechanism for price discovery, dissemination of information, and liquidity.
Details: The secondary market plays a crucial role in facilitating the trading of securities that have already been issued, allowing investors to buy and sell shares among themselves.

Key Concept 2: Stock Markets

Definition: A stock market is an organized secondary market for securities, regulated by the country's capital market regulator, such as SEBI in India.
Features: A stock market provides a platform for trading, clearing, and settlement of trades, with features such as:
- Trading platform: screen-based trading with anonymous trades and price-time priority.
- Clearing and settlement system: a clearing corporation that guarantees trades and facilitates settlement.
Advantages of Dematerialised Securities: Quicker settlement, elimination of threat of loss of certificates, bad deliveries, and lower transaction costs.

Key Concept 3: Participants in the Stock Markets

Investors: Individuals, institutions, and foreign investors who buy and sell securities on the stock market.
Intermediaries: Brokers, Depository Participants, and other intermediaries who facilitate trading and settlement.
Companies: Listed companies whose shares are traded on the stock market.
Eligible Investors: Resident investors, Non-resident Indians, Corporate bodies, Trusts, FPIs, and QFIs who are registered with SEBI.

Key Concept 4: Listing of Securities

Definition: The process of listing a company's shares on a stock exchange, allowing them to be traded by investors.
Eligibility Requirements: Companies must meet certain requirements, such as minimum continuous public holding of 25% of total issued shares, to list their shares on a stock exchange.
Responsibilities: Companies must comply with listing regulations and disclose information to investors.

Key Concept 1: Listing Agreement and Obligations

Definition: A listing agreement is a contract between a company and a stock exchange that outlines the company's obligations to its investors.
Details: The agreement requires the company to provide the stock exchange with due notice of meetings of the board of directors, proceedings of the meeting, and copies of the balance sheet, profit and loss account, and other reports.

Key Concept 2: SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015

Definition: The SEBI (LODR) Regulations prescribe disclosure requirements for listed securities and outline the obligations of listed entities.
Details: The regulations cover aspects such as:
- Applicability of the regulations
- Common obligations of listed entities
- Quarterly compliances
- Events requiring prior intimation
- Composition of the board and its committees
- Related party transactions

Key Concept 3: Compliance Officer and Share Transfer Agent

Definition: A compliance officer is responsible for ensuring regulatory compliance, while a share transfer agent manages the share transfer facility.
Details: The regulations require listed entities to:
- Appoint a qualified company secretary as the compliance officer
- Appoint a share transfer agent or manage the share transfer facility in-house
- Inform the stock exchange about the appointment of a new share transfer agent

Key Concept 4: Preservation of Documents

Definition: Listed entities must have a policy for preserving documents, categorizing them into permanent and non-permanent documents.
Details: The regulations require listed entities to:
- Have a policy for preserving documents
- Categorize documents into permanent and non-permanent documents
- Place the agreement with the share transfer agent at the subsequent board meeting

Key Concept 5: Corporate Governance and Disclosure Requirements

Definition: Listed entities must comply with corporate governance norms and disclose certain information to the stock exchange.
Details: The regulations require listed entities to:
- Comply with corporate governance norms
- Disclose certain information, such as dividend distribution policy and related party transactions
- Ensure that the board of directors and audit committee oversee the company's operations and finances.

Secondary Market Transactions (Part 3)

Compliance Requirements

Document Preservation: Documents related to transactions must be preserved for at least 8 years, and can be stored in electronic mode.
Board Composition: At least one independent director on the board of the listed entity must also be a director on the board of an unlisted material subsidiary.
Subsidiary Management: The management of the unlisted subsidiary must periodically inform the board of directors of the listed entity about significant transactions and arrangements.
Disposal of Shares: A listed entity cannot dispose of shares in its material subsidiary, resulting in less than 50% shareholding, without passing a special resolution in its general meeting.

Corporate Governance Requirements

Special Resolution: A special resolution is required for disposal of shares in a material subsidiary, unless the divestment is made under a scheme of arrangement or a resolution plan approved under the Insolvency Code.
Asset Sale: Sale, disposal, or leasing of assets amounting to more than 20% of the assets of the material subsidiary requires prior approval of shareholders by way of special resolution.

Quarterly Compliances

Investor Complaints: A statement must be submitted within 30 days from the end of each quarter, giving the number of investor complaints pending, received, disposed of, and unresolved.
Corporate Governance Report: A quarterly compliance report on corporate governance must be submitted within 30 days from the end of each quarter, including details of material transactions with related parties and cyber security incidents.
Shareholding Pattern: A statement showing holding of securities and shareholding pattern must be submitted within 21 days from the end of each quarter, and 1 day prior to listing of securities on the stock exchange.
Financial Results: Quarterly and year-to-date standalone financial results must be submitted within 45 days of the end of each quarter, and 60 days from the end of the last quarter.
Use of Proceeds: A statement indicating deviations in the use of proceeds from the objects stated in the offer document must be submitted within 45 days of the end of the quarter, and 60 days from the end of the last quarter.

Secondary Market Transactions (Part 4)

Introduction to Cybersecurity and Cyber Resilience Framework (CSCRF)

Definition: The CSCRF is a framework released by SEBI to strengthen cybersecurity measures in the Indian securities market.
Details: The framework aims to provide standards and guidelines for strengthening cyber resilience and maintaining robust cybersecurity of SEBI regulated entities (REs).

Key Components of CSCRF

Cyber Resiliency Goals: The CSCRF covers five cyber resiliency goals - Anticipate, Withstand, Contain, Recover, and Evolve.
Cybersecurity Functions: These goals are linked with the following cybersecurity functions - Governance, Identify, Protect, Detect, Respond, and Recover.
Cyber Capability Index (CCI): The CCI enables rating the cybersecurity and resilience controls of the REs and submit their CCI scores.

Prior Intimation of Board Meeting

Regulation 29(1): The listed entity shall give prior intimation to the stock exchange about the board meeting at which the following agendas are to be discussed:
- Financial results (quarterly, half-yearly, annually)
- Proposal for buyback of securities
- Proposal for voluntary delisting by the listed entity from the stock exchange(s)
- Fund raising by way of issue of securities
Timeline: At least 2 working days in advance (excluding the date of the meeting and the date of intimation)

Compliances Post Conclusion of Board Meeting

Regulation 52(8): The listed entity shall publish the financial results and the specified line items in at least one English national daily newspaper circulating in the whole or substantially the whole of India within 2 working days of the conclusion of the board meeting.
Regulation 33(3): The listed entity shall submit annual audited standalone financial results for the financial year, along with the audit report and Statement on Impact of Audit Qualifications, within 60 days from the end of the financial year.

Annual / Yearly Compliances

Regulation 34(1): The listed entity shall submit the annual report along with the notice of Annual General Meeting (AGM) to the stock exchange and publish on its website, not later than the day of commencement of dispatch to its shareholders.

Intimation within 24 Hours of Occurrence of Event

Regulation 30(6): The listed entity shall make disclosures to stock exchanges of material events/information as soon as reasonably possible and no later than 30 minutes from the closure of the board meeting in which the decision pertaining to the event or information has been taken.

Key Concepts in Secondary Market Transactions

Disclosure Requirements: In case the event/information is emanating from within the listed entity, disclosure is required immediately. If the event/information is not emanating from within the listed entity, disclosure is required within 24 hours from the occurrence of the event/information.
Regulatory Updates: Recent updates include SEBI Circular No.: SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/123 dated July 13, 2023, and SEBI Circular No.: SEBI/HO/CFD/CFD-PoD-2/CIR/P/2024/185 dated December 31, 2024.

Sample Questions and Answers

The proceeds of trades done on the secondary market go to the seller.
The Clearing Corporation stands guarantee for trades done on the stock exchange.
Stock markets are regulated by SEBI (Securities and Exchange Board of India).
The statement "The KYC norms are optional formalities imposed by some market participants to protect themselves" is FALSE, as KYC (Know Your Customer) norms are mandatory.
The statement "Brokers are members of a stock exchange who are authorised to put through trades on the stock exchange" is TRUE.