13. Legal & Regulatory Environment

Table of Contents

Ministry of finance

The Ministry of Finance is a government department responsible for overseeing the economic and financial activities of a nation. It is typically responsible for developing economic and fiscal policy, preparing and managing the budget, collecting taxes, monitoring the financial system, managing public debt, and providing advice and assistance to other government departments. The Ministry may also be responsible for regulating the financial sector, overseeing government spending, and managing the public debt.

Department Description Responsibilities
Ministry of Finance Oversees economic and financial activities of a nation Develops economic and fiscal policy, manages budget, collects taxes, monitors financial system, manages public debt, regulates financial sector, oversees government spending
Department of Economic Affairs (DEA) Provides advice and assistance on economic and fiscal policy Formulates fiscal policy, manages budget, monitors expenditure, oversees economic performance
Department of Revenue Collects taxes and other revenues for the government Administers tax system, ensures compliance with tax laws, provides assistance and advice on tax collection and management
Department of Expenditure Oversees government expenditure Monitors expenditure, ensures funds are used in accordance with government policy and budget allocations, provides advice and assistance on government expenditure management
Department of Financial Services Oversees the financial sector Formulates and implements policies to regulate financial sector, oversees banking sector, ensures compliance with financial laws and regulations, provides advice and assistance on financial regulation and supervision
Department of Disinvestment Responsible for divestiture of government-owned assets Formulates and implements policies for sale of government-owned assets, manages sale of government-owned enterprises, oversees divestiture of government-owned assets, provides advice and assistance on management and divestiture of government-owned assets

Ministry of Corporate Affairs

The Ministry of Corporate Affairs is primarily concerned with administration of the Companies Act and other allied Acts, rules and regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law. The issuance of securities by
companies is also subject to provisions of the Companies Act. The Registrar of Companies (ROC) is the authority appointed under the Companies Act to register companies and to ensure that they comply with the provisions of the law.

Reserve Bank of India

Reserve Bank of India The Reserve Bank of India is a central bank responsible for formulating and implementing monetary and financial policy. The Reserve Bank of India is responsible for regulating the banking system, managing the public debt, and setting the interest rate. The Reserve Bank of India also provides advice and assistance to other government departments on the management of the monetary and financial systems.

    1. As the monetary authority: to form
    2. As the regulator and supervisor of the financial system
    3. As the manager of Foreign Exchange
    4. As the issuer of currency
    5. Developmental role
    6. Banking functions

Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is a regulatory body responsible for overseeing the securities markets. The SEBI is responsible for regulating the securities markets, monitoring the activities of market participants, and ensuring compliance with applicable laws and regulations. The SEBI also provides advice and assistance to other government departments on the regulation of the securities markets.

Insurance Regulatory and Development Authority of India (IRDAI)

The Insurance Regulatory and Development Authority of India (IRDAI) is a regulatory body responsible for regulating the insurance sector. The IRDAI is responsible for formulating and implementing policies to regulate the insurance sector, monitoring the activities of insurers, and ensuring compliance with applicable laws and regulations. The IRDAI also provides advice and assistance to other government departments on the regulation of the insurance sector.

Pension Fund Regulatory and Development Authority (PFRDA)

The Pension Fund Regulatory and Development Authority (PFRDA) is a regulatory body responsible for regulating the pension sector. The PFRDA is responsible for formulating and implementing policies to regulate the pension sector, monitoring the activities of pension providers, and ensuring compliance with applicable laws and regulations. The PFRDA also provides advice and assistance to other government departments on the regulation of the pension sector.

Insolvency and Bankruptcy Board of India (IBBI)

The Insolvency and Bankruptcy Board of India (IBBI) is a regulatory body responsible for overseeing the insolvency and bankruptcy process. The IBBI is responsible for formulating and implementing policies to regulate the insolvency and bankruptcy process, monitoring the activities of insolvency professionals, and ensuring compliance with applicable laws and regulations. The IBBI also provides advice and assistance to other government departments on the regulation of the insolvency and bankruptcy process.

Important regulations in Indian Securities Market

The Insolvency and Bankruptcy Board of India (IBBI) is a regulatory body responsible for overseeing the insolvency and bankruptcy process. The IBBI is responsible for formulating and implementing policies to regulate the insolvency and bankruptcy process, monitoring the activities of insolvency professionals, and ensuring compliance with applicable laws and regulations. The IBBI also provides advice and assistance to other government departments on the regulation of the insolvency and bankruptcy process.

Regulations Description
The Securities and Exchange Board of India (SEBI) Regulations, 1992 The primary legal framework for regulating the Indian securities market. Sets out the rules and regulations regarding the issue and trading of securities, the registration and regulation of intermediaries, and other related matters.
The Securities Contracts (Regulation) Act, 1956 A law that regulates the trading of securities in the Indian securities market. Requires all stock exchanges to be recognized by the government and to comply with certain standards. Sets out the rules and regulations regarding the trading of securities on the stock exchanges.
The Depositories Act, 1996 Regulates the activities of depository participants in the Indian securities market. Sets out the rules and regulations regarding the registration and regulation of depository participants, the custody and transfer of securities, and other related matters.
The Foreign Exchange Management Act, 1999 A law that regulates foreign exchange transactions in India. Sets out the rules and regulations regarding the exchange of foreign currency, the transfer of funds from India, and other related matters.
Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 A set of regulations that prohibit insider trading. Sets out the rules and regulations regarding the disclosure of inside information by insiders, the prevention of insider trading, and other related matters.

Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (amended in December 2016)

The Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (amended in December 2016) govern the activities of research analysts in the Indian securities markets. The regulations set out the rules and regulations regarding the registration of research analysts, the disclosure of research reports, and other related matters. The regulations also provide for the establishment of a research analyst regulatory board, which is responsible for the registration and regulation of research analysts, and for monitoring their activities.

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NISM Series-XV: Research Analyst Certification

CHAPTER 13: LEGAL AND REGULATORY ENVIRONMENT

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1. What does EV (Enterprise Value) represent for a private owner?

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2. For analysts, which is the authentic source to check facts on a Company?

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3. Which of the following is a quality of a good research report?

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4. Leverage ratio is a part of which parameter of business analysis?

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5. What is the objective of stock exchanges regarding liquidity?

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6. What does the EV to Capital Employed ratio measure?

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7. In which industries is the Net Asset Value (NAV) approach commonly used?

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8. What happens to reinvestment risk when interest rates rise?

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9. Which bias can prevent investors from benefiting from market corrections?

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10. What are some potential reasons for failure of a research report?

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11. Which risk refers to the possibility that a bond issuer will not be able to make expected interest rate payments and/or principal repayment?

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12. Which recommendations are commonly used by research analysts to rate stocks?

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13. Which of the following is not a valuation parameter for business analysis?

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14. Which measure of return is the accepted standard in financial markets?

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15. What is the time frame typically used for calculating the stock turnover ratio?

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16. What does the Sharpe Ratio measure?

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17. If interest rates in the economy rise, the price of the bond would

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18. What is Jensen's Alpha?

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19. What is country risk?

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20. What is the earnings yield if the price of a stock is Rs. 195 and EPS is Rs. 13?

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21. Which measure of return accounts for the time value of money and reinvested returns?

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22. What is the relationship between interest rates and bond prices?

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23. What is an important consideration in valuing a business with high earning power?

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24. What is the purpose of relative valuation?

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25. What is the formula for calculating Compound Annual Growth Rate (CAGR)?

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26. What does the Price/Adjusted book value ratio consider?

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27. Which of the following is a non-cash charge?

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28. What are some qualitative parameters that can be included in an investment research checklist?

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29. How does the EV to Capital Employed ratio and Return on Capital Employed (ROCE) complement each other in investment decision making?

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30. What is the objective of the Capital Asset Pricing Model (CAPM)?

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31. Which risk is inherent in the operations of a company?

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32. What is political risk?

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33. Which risk refers to the absence of liquidity in an investment?

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34. What does ownership bias reflect?

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35. What should be focused on when assessing the return on capital and return on equity?

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36. What is the gambler's fallacy?

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37. Which source of information is commonly used for fact-based sections in a research report?

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38. What is the purpose of considering valuation parameters in an investment research checklist?

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39. What does the Treynor Ratio measure?

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40. What is anchoring bias?

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41. Why should one look at consolidated numbers in valuation?

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42. Which measure calculates the risk premium per Beta?

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43. According to "The Checklist Manifesto" by Dr. Atul Gawande, what distinction is made between errors of ignorance and errors of ineptitude?

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44. How is the price-to-earnings ratio calculated?

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45. Which type of return considers the investment period and allows for comparison?

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46. Which parameters are considered under quantitative analysis in an investment research checklist?

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47. Which risk refers to the risk of the loss of value in an investment due to adverse price movements in the market?

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48. Which bias leads to the search for information that confirms one's beliefs?

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49. If a stock has exceeded its Target Price, an analyst may recommend which action?

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50. What is Return on Investment (ROI) for a single period?

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51. What does a higher Jensen's Alpha indicate?

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52. What does herd mentality in investing refer to?

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53. Which bias involves interpreting information to confirm existing beliefs?

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54. What does the Net Asset Value (NAV) approach consider in valuation?

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55. What is the calling feature in bonds?

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56. What are some advantages of using a checklist approach in investment research reports?

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57. What are some valuation parameters used in the new age economy and businesses?

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58. Which shares are considered in the calculation of stock turnover ratio?

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59. What does the Price/Embedded value ratio measure?

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60. How is the EV to Capital Employed ratio calculated?

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61. What does projection bias involve?

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62. What is the Sum-Of-The-Parts (SOTP) valuation method?

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63. What is call risk?

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64. What is the main measure of liquidity in the traded value turnover ratio?

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65. Is dividend a small component of the total returns from equity?

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66. What does the winner's curse involve?

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67. What is reinvestment risk?

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68. Is business risk also known as operating risk?

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69. What are the major sections of a research report?

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70. How is stock turnover ratio calculated?

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71. What is systematic risk?

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72. What does the traded value turnover ratio measure?

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73. What is unsystematic risk?

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74. Why is valuation considered a subjective exercise?

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75. What is the purpose of investment for an investor?

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76. Which measure factors in the difference in risk?

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77. What is loss-aversion bias?

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78. When should one be cautious while using ROI numbers?

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79. Which risk arises from the decline in the value of security's cash flows due to the falling purchasing power of money?