Selling Insurance to Corporates by cta18290


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									      Background Material

        Raising Funds from Capital Market
Learning of Derivative Strategies in Capital Market
              (A-Z Option Strategies)
 Overview on Registration & Formation of Trusts

                    June 12, 2010

                  India Habitat Centre
                 Lodhi Road, New Delhi

                     Organised by
        Northern India Regional Council of
   The Institute of Chartered Accountants of India


             Seminar on Capital Markets
                      C.A. Sunil Garg
           President, Treasury & Group Finance                            COMMERCIAL PAPER
                 Religare Enterprises Ltd.

                  NIRC, June 12th, 2010

COMMERCIAL PAPER MARKET                                       CP – SUITABILITY/ OBJECTIVES

                                                               To enable highly rated Non Banking Companies
   Introduced in India in 1990.                                i.e. Corporates / PDs/ FIs to raise short term
   Intended to be a part of Working Capital Finance for        Suitable for:
   Corporates                                                    Lenders with short term surplus funds who wish to
                                                                 earn a higher rate then being offered by call money
                                                                 market or treasury bill market.
                                                                 Borrowers who wish to avail short term funds at
                                                                 effective rates cheaper than that being charged by
                                                                 the Banks (interest rate arbitrage).

CORPORATES                                                       RATING REQUIREMENTS
                                                                   Credit Rating to be obtained for issuance of CP
 The tangible net worth of the company, as per the latest
 audited balance sheet is not less then Rs. 4 Crore.
                                                                 from any of the following rating agencies :
 Company has been sanctioned working capital limit by bank       CRISIL, ICRA, CARE, FITCH or
 or AIFIs
                                                                 others, as may be specified by RBI
 The borrowal account of the company is classified as a
 Standard Asset by the financing bank / institution.
                                                                  Minimum Credit Rating : P-2 of CRISIL or such

                                                                 COST CONSTITUENTS
 CP – PRIMARY MARKET                                             FOR COMMERCIAL PAPERS
Players             Banks/MFs/FIIs/NRIs
Tenor               7 D – 364 D
Inv. Criteria              Liquidity                                   Discount Rate
                                                                       Rating Fee
                                                                       Stamping Fee
Placement           Earmarking (most pref.)                            IPA Fee
                     Stand alone cp                                    Arrangers Fee
                     Standby or Backstop facility
Denomination         Rs. 5 lakhs or multiple thereof.
                                                                       Registrar Fee
Mode of issuance     physical & demat                                  NSDL Fee
                     Issued at a discount to face value.

                                                       NON CONVERTIBLE DEBENTURES
                                                       Relevant provisions of Companies Act:
                                                       1.117to 123: Regulates (a) appointment of Debenture Trustee, (b)
                                                       Duties of Trustee, (c ) Creation of Debenture Redemption Reserve
                                                       and (d) Liabilities of Trustee, etc.
                                                       2.292(1)   (b): Approval of Board of Directors to issue Debentures.
                                                              (d): Approval of Shareholders required if the borrowing is
                                                       more than paid-up capital + free reserves of the Company


OBJECTIVES                                             FEATURES

•   Method of raising Loan capital
•   It forms part of Company’s Capital Structure       •Can  be issued as a public issue or as private
    but does not become share capital.                 placement.
                                                       •Can be issued for Short term (less than one
                                                       year) or Long term (more than one year)

BORROWERS                                                TRUSTEE
Investors                            Borrowers            Regulated by 117 B of the Companies Act,
  Investors                                               1956 and SEBI (Debenture Trustees)
• Mutual Funds                        • Corporates        Regulations, 1993.
• Corporates                          • FIs               Trustee can be a Bank, Insurance
• Banks                               • Banks             Company, Corporate or Public Financial
• FIIs                                                    Institution.
• Trusts/PFs                                              Mandatory in case of public/right issue of
• Individuals                                             debentures.
• Insurance Companies
                                                          Trustees are appointed to protect the
                                                          interest of the investors.

DEED AND STAMP DUTY                                      CREATION OF DEBENTURE
IMPLICATIONS                                             REDEMPTION RESERVE (DRR)
 Regulated by schedule IV of SEBI (Debenture              Regulated by section 117 C of the Companies Act,
                                                          1956 and General Circular no. 9/2002 dated
 Trustees) Regulations, 1993.                             18.04.2002 issued by the Department of Company
 It is an undertaking by the Company to pay               Affairs.
 principal and interest to the Debenture                  DRR is the reserve created out of profits of the
 holders.                                                 Company till the redemption of Debentures.
                                                          In case of NBFCs, no DRR is required if debentures
 It is a legal document to create charge on               are privately placed but in case of public issue of
 Company’s asset as security to the Debentures.           debentures, DRR is required to be 50% of value of
 Power to Trustees are defined in the Trust               debentures.
 deed.                                                    In case of other companies, it is 50% of value of
                                                          debentures when issued publicly and 25% when it is
 There is a stamp duty cost involved in creation          privately placed.
 of Debenture Trust deed in getting it                    No DRR is required for Banks, AIFIs (All India
 registered. It varies from state to state.               Financial Institutions) regulated by RBI.

                                                           OTHER REGULATIONS
  Rating from a Credit rating agency is required            For Companies which are NBFCs: (Non Public deposit
  by the Investor to confirm the financial strength         Following debentures are exempt from NBFC Acceptance of
  of the borrower/issuer of debentures.                     Public Deposits (Reserve Bank) Directions, 1998
                                                            a) Unsecured Debentures if issued to MFs.
  Privately placed / Debentures not to be listed:           b) Debentures which are fully secured.
  Not mandatory                                             c) Convertible Debentures

  Public Issue /Debentures to be listed: Mandatory          For other Corporates:
  Higher the quality of credit rating, more the             Following debentures issued will be exempted from Companies
                                                            (Acceptance of Deposits) Rules, 1975:
  benefit of lower rate of interest to the borrower.         a) Debentures secured by mortgage of any immovable
                                                             b) Convertible Debentures

LISTING OF DEBENTURES ON                                   COST CONSTITUENTS FOR
STOCK EXCHANGES                                            ISSUANCE OF DEBENTURES
 Regulated by SEBI (Issue and Listing of Debt                     Coupons
 Securities) Regulations, 2008
                                                                  Stamp Duty
 Public Issue: Mandatory
                                                                  Rating Fee
 Private Placement: Not Mandatory (if desired then
 needs to follow above regulations)                               Debentures Trustee Fee
 Credit Rating mandatory                                          Arranger Fee
 Compliances:                                                     NSDL or CDSL Fee
 1) Prior consent from Debenture Trustee,                         Registrar Fee
 2) Prior approval from Stock Exchange,
 3) Information Memorandum to be issued,
 4) ISIN no. to be generated from NSDL/CSDL,
 5) other listing compliances.


                                                               •It costs nothing to enter into a forward or
                                                               futures contact, there is a cost to enter into
        A to Z of OPTION Strategies                            an option contact.(hence understand before
                                                               entering into any option contract)

                                                               •It should be emphasized that an option
                                                               gives the holder the right to do something.
                                                               The holder does not have to exercise this
Head : Equity Broking , ALMONDZ GLOBAL SECURITIES LTD.         right.

                        Types of Options                                    Types of traders of derivatives

  •CALL option: a call option gives the holder the right       Hedgers : use derivatives to reduce or
  to buy the underlying asset by a certain date for a          eliminate this risk.
  certain price.                                               Speculators : wish to bet on future
                                                               movements. They use derivatives to get
  •PUT option: a put option gives the holder the right
  to sell the underlying asset by a certain date for a         extra leverage.
  certain price.                                               Arbitrageurs : are in business to take
                                                               advantage of a discrepancy between prices
  The price in the the contract is known as the                in two different markets.
  exercise or strike price, the date is known as
  expiration date

              OPTION Positions                                       Factors affecting OPTION prices

         •There are 2 sides to every option                   The current stock price
         contract.                                            The strike price
         •On one side is the investor who has
                                                              The time to expiration
         taken the long position(i.e.,has bought
         the option)                                          The volatility of the stock price
         •On other side is the investor who has               The risk free interest rate
         taken a short position(i.e.,has sold or              The dividends expected during the life of
         written the option).The writer of an                 the option.
         option receives cash up front but has
         potential liabilities later.her profit or loss
         is the reverse of that of the purchaser of
         the option.

        Relationship of all affecting factors                                   Put-Call parity

•The value of call generally increases as the                 Put-call parity is a relationship between
current stock price,the time of expiration,the                the price, c, of a European call option on a
volatility,and the risk free interest rate
                                                              stock and the the price, p, of a European
increases.The value of the a call decreases as the
strike price and expected dividends increase.                 put option on a stock. For a non-dividend
                                                              paying stock, it is:-
•The value of a put generally increases as the                                 -r(T-t)
strike price,the time to expiration,the                                  c+Xe          =p+s
volatility,and the expected dividends increase. The
value of put decreases as the current stock price
and the risk free interest rate increase.

       Trading strategies involving OPTIONS                  Covered call & Protective put

Plain VANILA & Standard options                      Covered call : buying the stock and
Complex or Nonstandard derivatives or                selling a call option on stock.
exotic options or just exotics.                      Its similar to selling a put option.
In recent years, banks and other financial
institutions have been very imaginative in
designing exotics to meet the needs of               Protective put : buying a put option
clients (tailor made)                                and buying the stock.
                                                     Its similar to buying a call option.

            SPREADS………………                                         SPREADS………………

BULL Spread: buying a call (put) with a              BUTTERFLY Spread: buying calls (puts)
low strike price and selling a call (put) with       with a low and high strike price and selling
a higher strike price.                               two calls (puts) with some intermediate
Bear spread: buying a call (put) with a              strike price.
high strike price and selling a call (put)           Its appropriate strategy for an investor
with a low strike price.                             who feel that large stock price moves are
Bull/bear spread limits both the investor`s          unlikely. It require a small investment
upside potential and her downward risk.              initially. Gives rise to small loss if there is
                                                     a significant stock price move in either

              SPREADS………………                                         SPREADS………………

Calendar spread: can be created by selling              Diagonal spread : is a spread which is
a call option with a certain strike price and           such that both the expiration date and the
buying a longer maturity call option with               strike price of the calls are different.
the same strike price.                                  its combination of bear, bull and calendar
Its created when direction is not known                 spreads. There are several different types
(arbitrage position).there can be many                  of diagonal spreads.
types of calendar spread:-
Neutral calendar spread
Bullish/bearish calendar spread
Reverse calendar spread etc………

       Combinations…………..                                                 STRADDLE

                                                        Buying a call and put with same strike
•A combination is an option trading strategy            price and expiration date. Its
that involve taking a position in both calls and        appropriate when investor is expecting a
puts on the same stock. Known as…                       large move in a stock price but does not
1.Straddles                                             know in which direction.
                                                        A top straddle or straddle write is the
2.Strips                                                reverse position.its created by selling a
3.Straps                                                call and put of same strike price and
                                                        same expiration. If the stock price on the
4.Strangles etc………                                      expiration date is close to strike rate ,it
                                                        leads to a significant profit.

                   Strips & Straps                                         Strangle

A strip consist of a long position in a call           In a strangle ,sometimes called a
and two puts with the same strike price                bottom vertical combination, an investor
and expiration date.                                   buy a put and a call with the same
A strap consist of a long position in a put            expiration date and different strike price.
and two calls with the same strike price               The sale of a strangle is sometimes
and expiration date.                                   referred to as a top can be
                                                       appropriate for an investor who feels that
                                                       large stock price moves are unlikely.

                     A of a to z                                       Exotic options

•This presentation has explained just a                Nonstandard American Options
few of the ways in which options can be                Forward Start Options
used to produce an interesting                         Compound Options
relationships. Its just A of A TO Z of option          Barrier Options
strategies.                                            Binary Options
                                                       Lockback Options
•It’s a vast field.most exotic options trade           Asian Options
in the otc mkt.,and are designed by                    Options to exchange One Asset to Another
financial institutions to meet the                     Options involving Several Assets
requirement of their clients:------------------

                    Many Ways

• There are many many other ways in
which options can be used to produce
interesting payoffs. Its not surprising that
option trading has steadily increased in
popularity and continues to fascinate

   There is no clear cut definition of “NOT FOR PROFIT ORGANISATION”, but
in common parlance they are considered to be of Charitable, Religious,
Philanthropic, Cultural, Social, Political, Educational, Sports, Mutual Benefit
Societies or Trade Associations or other organizations carrying out objects of
public utilities. There is no specific Act of India, which deals with Not for Profit
Organisations. Many of the organisations are constituted by specific Acts of
Parliament or State Legislatures for a stated purpose. However, the most
common organisations are constituted under the following heads:-

   a)   Trusts registered under the Trusts Act.
   b)   Societies registered under the Societies Registration Act, 1860.
   c)   Trusts created by will.
   d)   Wakfs and wakf boards under the Mohammedan Law.
   e)   Section 25 companies existing not for profit under the Companies Act,

The TRUSTS are formed by the procedure laid down in the Indian Trust Act,
1882. A Trust is created by desire and declaration, which may be oral or written
or by will, but it is advisable to have a trust declaration written, if it involves
immovable property and it should be registered with the appropriate Sub-
Registrar under the Indian Registration Act.

There are the following essential features of the trust:-
   1. Three parties; Author or Settler, Trustee and Beneficiary.
   2. Declaration of Trust.
   3. Certainty of the subject matter of the trust.
   4. Certainty of the objects of the trust.

The Trust Deed is the constitution of the Trust to be formed. It contains the
aims and objects of the trust, and the purposes for which the property of the trust
can be utilised, beneficiaries of the trust and makes rules for the management
and administration of the trust property and distribution thereof. The settler may
direct for any specific mode of investment of trust funds. The declaration of trust
once made cannot be modified or altered even by the settler unless he has
reserved the right.

The stamp duty required for the declaration of trust is as per Stamp Act of the
relevant state and is similar to the one applicable to Conveyance Deed. In Delhi,
at present it is 8% of the value of the property settled.

The Trust Deed or Declaration to be effective should contain the following items:-
   a) Name of the Trust.

   b)   Official address of the Trust
   c)   Objects of the Trust
   d)   Number of the Trustees.
   e)   Term of office of the Trustees.
   f)   President.
   g)   Managing Trustee.
   h)   Termination of office of the trustees.
   i)   Meeting and proceedings of the Trustees.
   j)   Quorum and Voting in the meetings.
   k)   Powers, Functions and Duties of the Trustees.
   l)   Application of the properties of the Trust.
   m)   Accounts and Audit
   n)   Defects of Procedure immaterial.
   o)   Amendments.
   p)   Dissolution of the Trust.

                 REGISTRATION ACT:-
The most common form of N.P.O. is Societies registered under the Societies
Registration Act, XXI of 1860 and as per provisions of Section 20 of the said Act
following Societies may be registered.

Section 20:- the following societies may be registered under this Act:-

Charitable societies, the military orphan funds or societies
established at the several presidencies of India, societies
established for the promotion of science, literature, or the fine
arts for instruction, the diffusion of useful knowledge, {the
diffusion of political knowledge}, the foundation or maintenance
of libraries or reading rooms for general use among the
members or open to the public or public museums and galleries
of paintings and other works of art, collections of natural
history, mechanical and philosophical inventions, instruments
or designs.
Minimum seven persons are required to get the society registered, who will
apply to the Registrar of Firms and Societies of relevant state with copy of
Memorandum of Association and Rules and Regulations duly signed and verified
and a fee of Rs. 50/- is to be paid.

The Memorandum of Association has to be of the following format:-
   1. Name of the Society.
   2. Registered Office of the Society.

   3. Aims and Objects of the Society.
   4. Present Management.
   5. Subscription by Desired Persons.

   The Memorandum of Association has to be signed by at least three office
   bearers and identity proof of the Desired Persons should be filed.

   Special points to be considered:-
     1. The proposed name should not contravene the provisions of the
         Emblems Act, 1950.
     2. The Societies having All India Character should have one member
         each from at least seven states.
     3. Signatories to the Memorandum of Association should be duly
     4. An affidavit regarding legal possession of the office should be filed.
     5. Present Management should be out of the Desirous Persons, who
         have subscribed to Memorandum of Association.
     6. Rules and Regulations should be consistent with the provisions of
         Societies Registration Act, XXI of 1860 as applicable to Union Territory
         of India.
     7. Rules must provide for provisions relating to Sections 4, 6, 12, 13 and
         14 of the Act.

      Generally, the rules should contain the following:-
        1. Name of the Society.
        2. Membership of the Society.
        3. General body of the Society.
        4. Governing Body.
        5. Bank account.
        6. Functions of the Governing body.
        7. Sources of the income.
        8. Election and Quorum
        9. management of the funds
        10. Powers and duties of the office bearers.
        11. Audit
        12. Amendment
        13. Legal proceedings Section-6 of the Act.
        14. Annual List of governing body
        15. Dissolution

                  SECTION 25 COMPANIES :-
In case of Joint Stock Companies, not for profit companies are registered as
Private or Public Limited Companies under the Companies Act, 1956 and can get
a license for use of name with Limited at the end u/s 25 from the R. D. Company
Law Department. The procedure for the registration is same as that of the other


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