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A Beginners Guide to Financial Markets Part2
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What does one mean by ‘Lock-inÙ?

‘Lock-inÙ indicates a freeze on the sale of shares for a certain period of time.
SEBI guidelines have stipulated lock-in requirements on shares of promoters
mainly to ensure that the promoters or main persons, who are controlling
the company, shall continue to hold some minimum percentage in the
company after the public issue. 

What is meant by ‘Listing of SecuritiesÙ?

Listing means admission of securities of an issuer to trading privileges
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.

What is a ‘Listing AgreementÙ?

At the time of listing securities of a company on a stock exchange, the
company is required to enter into a listing agreement with the exchange.
The listing agreement specifies the terms and conditions of listing and the
disclosures that shall be made by a company on a continuous basis to the
exchange. 

What does ‘Delisting of securitiesÙ mean?

The term ‘Delisting of securitiesÙ means permanent removal of securities of a
listed company from a stock exchange. As a consequence of delisting, the
securities of that company would no longer be traded at that stock
exchange. 

What is SEBIÙs Role in an Issue?

Any company making a public issue or a listed company making a rights
issue of value of more than Rs 50 lakh is required to file a draft offer
document with SEBI for its observations. The company can proceed further
on the issue only after getting observations from SEBI. The validity period of
SEBIÙs observation letter is three months only i.e. the company has to open
its issue within three months period.

Does it mean that SEBI recommends an issue?

SEBI does not recommend any issue nor does take any responsibility either
for the financial soundness of any scheme or the project for which the issue
is proposed to be made or for the correctness of the statements made or
opinions expressed in the offer document. SEBI mainly scrutinizes the issue
for seeing that adequate disclosures are made by the issuing company in the
prospectus or offer document.

Does SEBI tag make oneÙs money safe?

The investors should make an informed decision purely by themselves based
on the contents disclosed in the offer documents. SEBI does not associate
itself with any issue/issuer and should in no way be construed as a
guarantee for the funds that the investor proposes to invest through the
issue. However, the investors are generally advised to study all the material
facts pertaining to the issue including the risk factors before considering any
investment. They are strongly warned against relying on any ‘tipsÙ or news
through unofficial means.

 

Can companies in India raise foreign currency resources?

Yes. Indian companies are permitted to raise foreign currency resources
through two main sources: a) issue of foreign currency convertible bonds
more commonly known as ‘EuroÙ issues and b) issue of ordinary shares
through depository receipts namely ‘Global Depository Receipts
(GDRs)/American Depository Receipts (ADRs)Ù to foreign investors i.e. to the
institutional investors or individual investors. 

What is an American Depository Receipt?

An American Depositary Receipt ("ADR") is a physical certificate evidencing
ownership of American Depositary Shares ("ADSs"). The term is often used
to refer to the ADSs themselves.

What is an ADS? 

An American Depositary Share ("ADS") is a U.S. dollar denominated form of
equity ownership in a non-U.S. company. It represents the foreign shares of
the company held on deposit by a custodian bank in the company's home
country and carries the corporate and economic rights of the foreign shares,
subject to the terms specified on the ADR certificate. 

One or several ADSs can be represented by a physical ADR certificate. The
terms ADR and ADS are often used interchangeably.

ADSs provide U.S. investors with a convenient way to invest in overseas
securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
depository bank, such as JPMorgan Chase Bank. They are traded in the
same manner as shares in U.S. companies, on the New York Stock Exchange
(NYSE) and the American Stock Exchange (AMEX) or quoted on NASDAQ
and the over-the-counter (OTC) market. 

Although ADSs are U.S. dollar denominated securities and pay dividends in
U.S. dollars, they do not eliminate the currency risk associated with an
investment in a non-U.S. company. 

What is meant by Global Depository Receipts?

Global Depository Receipts (GDRs) may be defined as a global finance
vehicle that allows an issuer to raise capital simultaneously in two or
markets through a global offering. GDRs may be used in public or private
markets inside or outside US. GDR, a negotiable certificate usually
represents companyÙs traded equity/debt. The underlying shares correspond
to the GDRs in a fixed ratio say 1 GDR=10 shares.

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