SEBI & NISM — Interview Q&A

Q: What is SEBI and what are its powers?

SEBI (Securities and Exchange Board of India) was established in 1988 as a non-statutory body and given statutory powers under SEBI Act 1992.

It regulates: stock exchanges, brokers/sub-brokers, merchant bankers, portfolio managers, mutual funds, depositories, FPIs, credit rating agencies.

Powers: Quasi-legislative (make regulations), Quasi-executive (investigate and inspect), Quasi-judicial (adjudication, SAT appeal).

Q: What is NISM and why are its certifications needed?

NISM (National Institute of Securities Markets) is set up by SEBI for education in securities markets.

Certifications are mandatory for persons associated with securities market intermediaries.

Key certifications: NISM Series VA (Mutual Fund Distributors), NISM VIII (Equity Derivatives), NISM X-A (Investment Adviser Level 1), NISM XVII (Retirement Advisor).

Without valid NISM cert, a distributor/adviser cannot legally sell/advise on products.

Q: What is the difference between Primary and Secondary market?

Primary market: Companies issue new securities (IPO, FPO, rights issue, private placement) to raise fresh capital.

Secondary market: Trading of already-issued securities between investors (NSE, BSE).

Companies get money only in primary market; secondary market provides liquidity and price discovery.

Q: What is SEBI's ICDR (Issue of Capital and Disclosure Requirements) Regulations?

ICDR governs how companies raise capital from public: eligibility criteria for IPO (profitability track record, minimum paid-up capital), lock-in periods for promoters, disclosure in prospectus (Red Herring Prospectus for book building, fixed price issues), pricing (book building: 80% to QIBs, 15% NII, 5% retail).

Recent change: 50% employee reservation can be carved from QIB portion.

Q: What are the categories of mutual fund schemes?

SEBI's October 2017 mutual fund categorization:

Q: What is LODR (Listing Obligations and Disclosure Requirements)?

SEBI LODR Regulations 2015 governs listed companies' ongoing obligations: Board composition (minimum 50% independent directors for listed companies), related party transactions (approval, disclosure), material events disclosure within 24 hours, quarterly/annual financial results, BRSR (Business Responsibility and Sustainability Report), CEO/CFO certification.

Q: How does SEBI regulate FPIs (Foreign Portfolio Investors)?

FPIs must register through Designated Depository Participants (DDPs).

3 categories: Category I (Government/sovereign funds — least scrutiny), Category II (Regulated entities like mutual funds, banks), Category III (All others).

Single FPI ≤10% of paid-up capital of company.

All FPIs combined ≤24% (can increase up to sectoral cap with board/shareholder approval).

Q: What is the difference between FPI and FDI?

FPI: Portfolio investment — buys listed shares/bonds, can exit freely, no voting/management rights intended, regulated by SEBI.

FDI: Direct investment — stake in unlisted or 10%+ in listed company, long-term commitment, operational control/influence, regulated by DPIIT/RBI under FEMA.

FDI brings technology transfer and employment; FPI brings capital and liquidity.