Money and Capital Market: Foreign portfolio investment

Statements 1 and 2 are correct. SEBI was constituted on 12 April 1988 by a Government resolution and became a statutory body under the SEBI Act, 1992, first through an ordinance of 30 January 1992. A person aggrieved by a SEBI order may appeal to the Securities Appellate Tribunal (SAT) set up under Section 15K, and a further appeal on questions of law lies to the Supreme Court under Section 15Z. Statement 3 is wrong: under Section 4 the Chairman and members are appointed by the Central Government; the Board includes officials of the Finance Ministry, one member from the RBI and other members.

SCORES (SEBI Complaints Redress System), launched in 2011 and upgraded as SCORES 2.0 in 2024, is SEBI's web-based system through which an investor can lodge a complaint against a listed company or a SEBI-registered intermediary such as a broker or depository participant, and follow its redress online. The entity concerned must respond within set timelines, failing which the complaint is escalated. It is separate from SEBI's online dispute resolution portal, which handles disputes through conciliation and arbitration. Credit scores are produced by credit information companies regulated by the RBI.

SEBI's Social Stock Exchange framework of 2022 provides for an SSE as a separate segment of an existing exchange (BSE and NSE run SSE segments). Eligible not-for- profit organisations must first register with the SSE and can then raise money by issuing Zero Coupon Zero Principal (ZCZP) instruments. As the name says, a ZCZP instrument pays no interest and returns no principal; it is in effect a donation tied to a stated social project, with the NPO reporting on the social impact. For-profit social enterprises meeting the criteria can raise funds through equity and other routes. So option (c) is the incorrect statement.

All three statements are correct. The PIT Regulations, 2015 prohibit an insider from trading in listed securities while in possession of unpublished price sensitive information (UPSI), and also forbid passing on such information except for legitimate purposes. UPSI is information not generally available that is likely to affect the price materially, and the Regulations list financial results, dividends, changes in capital structure, mergers and acquisitions, and changes in key managerial personnel as ordinary examples. An insider includes a connected person (directors, officers, employees and others with access) and any person in possession of or having access to UPSI.

Statements 1 and 2 are correct. The call, notice and term money segments are classified by tenor: overnight, more than one day up to 14 days, and 15 days up to one year. The RBI's Call, Notice and Term Money Markets Directions, 2021 allow only scheduled commercial banks (excluding local area banks), payments banks, small finance banks, regional rural banks, co-operative banks and primary dealers to participate, both as borrowers and lenders. Statement 3 is wrong: non-bank institutions such as mutual funds and insurers were phased out of the call market in the mid-2000s and now lend short-term funds through collateralised segments such as triparty repo.

Statements 1 and 2 are correct. Under ASBA, mandatory for public issues, the amount applied for is blocked in the investor's own account and debited only for the shares actually allotted, so no refund is needed. SEBI's circular of 5 April 2022 raised the UPI limit for individual investors to ₹5 lakh for issues opening from 1 May 2022. Statement 3 is wrong: SEBI cut the listing timeline from T+6 to T+3 working days, optional for issues opening from 1 September 2023 and mandatory for those opening on or after 1 December 2023.

All three statements are correct. For a company eligible under Regulation 6(1) of the ICDR Regulations (track record of net tangible assets and operating profits), a book-built issue must allot not more than 50 per cent of the net offer to qualified institutional buyers (QIBs), not less than 15 per cent to non-institutional investors and not less than 35 per cent to retail individual investors (those applying for up to ₹2 lakh). Up to 60 per cent of the QIB portion may go to anchor investors. The split is reversed for companies that do not meet the profitability test and come under Regulation 6(2): at least 75 per cent must go to QIBs and retail investors may get at most 10 per cent.

Both statements are correct and Statement-II explains Statement-I. Under Section 63 of the Companies Act, 2013, a company may issue fully paid bonus shares out of its free reserves, securities premium account or capital redemption reserve. The issue only moves an amount from reserves to share capital inside the balance sheet; no cash comes in, so the company's net worth and, in theory, the total market value of shareholders' holdings stay the same while the number of shares rises. That is precisely why Statement-I holds. In contrast, IPOs, rights issues and QIPs raise fresh capital.

Two of them belong to the capital market (b). The capital market deals in long-term funds, over one year. It includes the stock market (item 4), where shares are traded, and the government bond market (item 1), where long-dated bonds are bought and sold. The money market deals in funds for up to one year. Item 2 is wrong: call money is borrowing between banks for one day, up to 14 days for notice money. Item 3 is wrong: Treasury Bills are short-term government papers of 91, 182 and 364 days.

Notice the regulators: SEBI watches the capital market, while the RBI looks after the money market and government securities. Commercial paper and certificates of deposit are other money market tools.

Answer as per the official UPSC answer key.

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