#debenture issuance procedure

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Issuance of Shares and Debentures: Procedure and Definition

A share is a unit of ownership in a company. When a company issues shares, it divides its ownership into equal portions, and each portion is represented by a share. Shareholders who own these shares are considered partial owners of the company and are entitled to certain rights, such as voting on company matters, receiving dividends (if declared), and participating in the company’s profits…

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Section 91 of Companies Act 2013

Section 91 of Companies Act. Power to close the register of members, debenture holders, or other security holders.

“S91: (1) A company may close the register of members, the register of debenture holders, or the register of other security holders for any period or periods not exceeding in aggregate forty-five days in each year but not exceeding thirty days at any one time, subject to giving previous notice of at least seven days or such lesser period as may be specified by the Securities and Exchange Board for listed companies or the companies that intend to get their securities listed, in such manner as may be prescribed.

(2) If the register of members or of debenture holders or of other security holders is closed without giving the notice as provided in sub-section (1), or after giving shorter notice than that so provided, or for a continuous or aggregate period in excess of the limits specified in that sub-section, the company and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for every day subject to a maximum of one lakh rupees during which the register is kept closed.”

Scope of Section 91 of Companies Act

The power for cancelling the transfer of the shares can be unseen by the closure of the register. An alternative to closing the registers is a record date. Closing the register serves to update the registers and set a deadline for the payment of dividends or the issuance of bonus shares and rights.

When to close the register of members?

When a company serving a prior notice not less than 7 days, or and if it’s listed company or such company intent to list their securities, a lower period may be specified by the Security & Exchange Board, close to member, debentures, or any other security holder register for any such period or periods not exceeding the 45 days in year, but not more than 3o times at a time.

Rule 10 of Companies (Management & Administration), 2014

When a company listing their securities or closing the membership, debentures, or other security register, it must give at least7 days’ notice & follows the procedure set forth by the Securities & Exchange Board of India. This procedure may include publishing and advertisement at least once in a local newspaper that is widely read in the company’s registered office location and its written in the primary vernacular the language of the district. 

And at least once in English in a newspaper published in that district that is widely read in the area where the company has its registered office. Additionally, the notice would be posted online as soon as the central government notifies it to be done. So, as well as on the company’s holder Additionally, the notice should be posted online as soon as the Central Government notifies it to be done so, as well as on the company’s website, if any.

A private corporation is exempt from the provisions of subrule (1) if notice has been given to all of its members at least seven days before the register of members, holders of debentures, and holders of other securities is closed.

To know more, Visit on: Section 91 Of Companies Act 2013 |

Registerkaro

[estabizz]

Registration of NBFC: A Comprehensive Guide for Successful Application

Introduction

Welcome to our comprehensive guide on the registration process for Non-Banking Financial Companies (NBFCs). If you are looking to establish an NBFC and navigate through the complex registration procedures, you've come to the right place. Our expertise in the field of NBFC registration and our commitment to providing accurate information will ensure that you have a solid understanding of the process. Let's dive in!

Understanding NBFCs

Before delving into the registration process, it's crucial to grasp the concept of NBFCs. Non-Banking Financial Companies are financial institutions that provide a wide array of banking services without holding a banking license. They play a significant role in the Indian financial system, offering services such as loans, credit facilities, asset financing, and investments.

Benefits of NBFC Registration

Registering your NBFC offers numerous advantages, including:

Credibility: NBFC registration enhances the credibility and trustworthiness of your financial institution in the eyes of potential customers and investors.

Regulatory Compliance: By obtaining registration, you ensure compliance with the regulatory framework set by the Reserve Bank of India (RBI) and other relevant authorities.

Access to Funding: Registered NBFCs have access to various sources of funding, including borrowings from banks and financial institutions, issuance of debentures, and raising capital from the public.

Legal Protection: Registration provides legal protection, safeguarding your business against potential risks and ensuring a smooth operation.

Step-by-Step Guide to NBFC Registration

Step 1: Company Incorporation

The first step towards NBFC registration involves incorporating a company under the Companies Act, 2013. Here are the key points to consider during this process:

Choose a suitable company name that complies with the guidelines provided by the Ministry of Corporate Affairs (MCA).

Prepare the necessary incorporation documents, including the Memorandum and Articles of Association.

File the incorporation documents with the Registrar of Companies (ROC).

Obtain a Certificate of Incorporation from the ROC, marking the official commencement of your company.

Step 2: Minimum Capital Requirement

To meet the minimum capital requirement for registration of  NBFC, you must ensure that your company's net owned funds are not less than ₹2 crore. Net owned funds include paid-up equity capital, free reserves, and preference shares that are freely convertible into equity.

Step 3: Infrastructure Setup

Establishing a robust infrastructure is crucial for the smooth functioning of your NBFC. This includes setting up a dedicated office space, implementing necessary technological infrastructure, and ensuring compliance with data security and privacy standards.

Step 4: RBI Application and Documentation

To proceed with the NBFC registration, you need to submit an application to the Regional Office of the RBI in your jurisdiction. The application must include the following documents:

Detailed business plan and projected financials for the next three years.

Information about the promoters, directors, and key management personnel, including their educational qualifications and experience.

Fit and Proper Criteria: The RBI assesses the fitness and propriety of the individuals associated with the NBFC.

KYC Documents: Provide identity proof, address proof, and other required documents for all the individuals involved.

Anti-Money Laundering (AML) Policy: Submit a comprehensive AML policy, outlining your strategies for preventing money laundering activities.

Ownership Structure: Provide a clear representation of the shareholding pattern of your NBFC.

Step 5: Due Diligence and Verification

Once your application is submitted, the RBI will conduct a thorough due diligence and verification process. This may involve background checks, site visits, and interviews with the key personnel associated with the NBFC.

Step 6: Approval and Registration

If the RBI is satisfied with your application and finds your NBFC compliant with the necessary regulations, you will receive an approval letter. Subsequently, you need to fulfill the following requirements to complete the registration process:

Pay the requisite registration fee to the RBI.

Submit the required documents, including the approval letter, to the ROC for registration.

Obtain a Certificate of Registration from the ROC, signifying the successful establishment of your NBFC.

Conclusion

Congratulations! By following this comprehensive guide, you are now well-informed about the registration process for Non-Banking Financial Companies. Remember, the journey of establishing an NBFC requires meticulous planning, adherence to regulatory guidelines, and a deep understanding of the financial landscape. With our expert guidance and commitment to excellence, we are confident that you are on the path to success. Should you have any further queries or require assistance, feel free to reach out to our experienced team. Start your journey towards a successful NBFC today!

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What kinds of documentation are needed for immigration to Canada?

Required Documents for Canadian PR List

Processing, documentation, and filing of the Canada Permanent Residency (PR) application are the three main phases of immigration to Canada, and each of these phases is crucial for a smooth process. Creating the express entry program is the first step in processing the application; documentation is the next crucial step. Learn more about the list of documents needed for Canada PR immigration by reading this article.

The application of any applicant who provides false information on the paperwork or forgets to submit a crucial document at the time of documentation will be subject to rejection by IRCC. (Immigration Refugee and Citizenship Canada), and the applicant may experience the underlying effects of the action by being barred for five years from applying for permanent resident (PR) status. Furthermore, any deception made as a result of a lack of comprehension of the documentation procedure can also result in an improper filing and is seen as a fraud, it is the applicant who is most likely to suffer the consequences.

Therefore, it is essential to employ the best immigration consultant to handle the procedure since they can help one have a hassle-free documentation process as they are skilled in the trade and have a thorough knowledge of the process.

Need Help? Talk to our immigration experts

Are you looking for assistance with the list of documents needed for a Canada PR visa? Simply fill out our form for a free visa evaluation to get free help from an immigration specialist.

List of Documents Needed for Canadian Permanent Residence in 2022

Here is a list of the required Canada PR paperwork for 2022. When submitting an application for Canadian permanent residence, all supporting documentation must be current and organized appropriately. Depending on the type of application and the requirements of the program the candidate is applying for immigration through, the list of documents for Canada PR may change.

The primary documentation for Canada PR (Permanent Residents) that must be submitted in this regard includes some of the following:

List of Education Credential Assessment

The assessment of academic credentials should only be done by a recognized organization like WES. The ECA reports must be submitted and are valid for five years after the date of issuance. The processing time and price of the evaluation can differ depending on the agency selected.

The following organizations can assist the applicant in obtaining an ECA; their fees and turnaround times vary.

World Education Services(WES)

Comparative Education Service - University of Toronto School of Continuing Studies

International Credential Assessment of service of Canada

International Qualifications Assessment service

International Credential Evaluation Service

Medical Council of Canada

Pharmacy Examining Board of Canada

Proof of Funds

Genuine evidence of finances must be submitted in order to apply for immigration, which is a necessary prerequisite. You must include it in your list of crucial documents needed for Indian or other foreign nationals seeking permanent residency in Canada. The previous six-month bank statements, letters from the bank's employers, prior pay stubs, a list of assets and liabilities, etc. will be included in this.

Also read:

💡 Provincial Nominee Program your easiest gateway to Immigrate to Canada

💡 Migrate to Canada through Express Entry and Calculate Your CRS Points

The paperwork needed as evidence of funds includes

Bank account statements

Shares/debentures/bonds

Loans and credit documents

The previous salary paycheck details

The property or asset valuation

Language Test results from the IELTS or any other exam are taken.

A language test in either English or French, one of Canada's official languages, is crucial. These test results are used to determine the applicant's point total as part of the Comprehensive Ranking System (CRS) score.

An employer's offer letter from Canada

If you have a work letter from a Canadian employer, not only are you eligible for more points in the scoring system, but you also have a better chance of getting approved for immigration. The Canadian employer's letter is a crucial document that needs to be submitted. There are, however, provisions for immigration as well without the work letter.

A territory nomination certificate or a provincial nomination certificate

If a candidate is applying for immigration under the Provisional Nominee Program, their documentation should be sufficient proof of their work history. The paperwork needed varies depending on the province. Our experts will give you an extensive list of the necessary documents.

Marriage certificates or divorce decrees, if a married couple needs proof of their relationship status.

You should submit the status of your marriage before applying for immigration as it is a crucial document list for Canada PR. Furthermore, you might benefit from the points for your spouse's qualifications and raise your point total if they are highly skilled and experienced.

Passport

A person cannot begin the Canada PR Visa Process without a current passport. At the time of application submission, a copy of the passport is provided.

Your individual reference number

With your Personal Reference code, accessing your application is made simpler. Therefore, give the authorities all of your information.

A profile number for Express Entry.

When the authorities receive all the data required for a good review, the process becomes more accessible and quick.

Code for validating job seekers

After immigration, you will be able to find a job that fits your talents by comparing them to the Jobseeker Validation Code. This is the greatest way to evaluate your skills.

Health report

If you are a contagious disease carrier or you have a terrible illness, no country would want to live in constant fear of an epidemic. You should submit your medical report together with a list of all your checkups to the authorities to reassure them that you are a healthy person. The validity of this report is for a period of six months.

Report of Police Verification

No nation wants someone with a criminal history operating within its borders. Submit a police report indicating that you have no past criminal convictions, immigration violations, or any other current court issues.

Birth certificate

You must submit a birth certificate in order to calculate your age correctly.

Character certificate

You can also get a character certificate highlighting your moral principles from former employers or teachers.

Recommendation letters from prior employment

It's crucial that your most recent employers vouch for your skills and experience if you want to land a new job in Canada. As a result, your talents must be verified in a letter of recommendation from your company and professional contacts.

Photographs

For ID verification, two 35 mm * 45 mm passport-sized photos must be provided. The front face, neck, and shoulders should be clearly seen in the photos.

The Processing Period Following Filing List of Documents Needed for Immigration to Canada Depending on the application program and the calibre of the profile submitted, the processing time for Canada permanent residency (PR) status can change. However, the Express Entry program, which allows the applicant to immigrate to Canada in six months or even less in some circumstances, is the fastest way to do so.

To know more about the latest draw and Canada Immigration News Updates:

VISIT HERE

Also read:

💡 How Does Age Affect My Canada Immigration Application for Express Entry?

💡 Confirm the minimum IELTS required for Canada PR

Source Url: https://aptechglobalimmigration.blogspot.com/2022/11/what-kinds-of-documentation-are-needed.html

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Understanding the Financial Creditor Under IBC

Financial creditors under IBC and operation creditors differ in that their liabilities stem from various sources. Where a financial creditor under IBC is obligated according to a contract, such as a loan or debt, and an operational creditor is obligated due to operational activities.

The new insolvency and bankruptcy law in India, the Insolvency and Bankruptcy Code, 2016, caused a significant deal of doubt over a complainant's eligibility to commence a corporate insolvency resolution procedure. It is primarily determined by the law's requirement that a complaint is a "financial creditor under IBC" or "operational creditor."

Homebuyers are currently caught in a Catch-22 position due to interpreting many new terminologies employed in the legislation. As a result, the applicability of financial and operational creditors to a homebuyer and a commercial real estate purchaser has been addressed in this article.

Financial creditors under IBC are defined as follows under Section 5(7) of the Insolvency and Bankruptcy Code of 2016, 'A person who owes a financial obligation, including a person to whom such debt has been lawfully assigned or transferred.' A financial creditor under IBC has a 'financial debt' owing to him under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

The following is how the Code defines financial debt: 'A debt, including with any interest, which is disbursed in exchange for the time worth of money and includes:

Money borrowed in exchange for interest

Any sum raised by acceptance under any acceptance credit     arrangement or its de-materialized equivalent

Any funds raised by the use of a note purchase facility or the issuance     of bonds, notes, debentures, loan stock, or other similar instruments

The amount of any liability arising from any lease or hire purchase     contract that is classified as a finance or capital lease under Indian     Accounting Standards or other accounting standards as required.

Receivable sold or reduced other than a non-recourse receivable

Any sum raised by any other transaction, including any forward sale     or buy agreement, that has the commercial impact of borrowing

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How to make a IEPF recovery

IEPF stands for Investor Education and Protection Fund is incorporated under Section 125 of Companies Act 2013. IEPF is a government authority that is entrusted to check all unclaimed dividends, deposits, shares, etc., of a company. It looks over refunds of shares, matured deposits/debentures, unclaimed dividends, etc., to investors.

What is transferred to IEPF?

There is a vast amount of unclaimed money piling up with the IEPF in the form of old equity shares, dividends, debentures, etc. The remaining unclaimed investments for seven years or more are generally transferred to the IEPF. The following are the heads they fall under:

The investor does not yet claim dividends issued by the company.

Shares as per the folio under which the dividends have remained unclaimed for a consecutive period of 7 years.

Matured debentures that are unclaimed with the company.

Matured deposits with a company except banking companies.

Sale proceeds of fraction shares that arises due to amalgamation issuance of bonus shares, and mergers of different companies.

Application money received by the company connected to an application for security purposes and refund remaining due.

The redemption amount related to preference shares that are unclaimed by an investor.

How to process IEPF recovery of shares transferred to IEPF?

Processing IEPF recovery of shares transferred to the Investor Education and Protection Fund authority requires a handful of documents, and the form fills up multiple proofs. The documents must be submitted following various other steps with the company and management. For proper IEPF recovery and getting back all your lost investments, you need to make sure all the procedures are timely accounted for, and nothing is left undone.

Understanding the case: It is essential to understand the case deeply first. You may contact any company and take help. It is essential to understand the investments you hold and those transferred to the IEPF Authority. In this way, it will be easy to analyze all the difficulties and issues that may come up during transmission or recovering investments from IEPF.

Verification of all details and confirmation of the total amount to be recovered: Every penny must be accounted for to be recovered. It should be verified by the companies’ Transfer agents and Registrar. Hence, all the details are validated regarding the total amount of recovery, and shares transferred to IEPF will be confirmed.

Preparing documents and filing IEPF form 5: Double-check all the details carefully while filling the form. After submission, no changes are accepted. Remember, only one form can be filed against one company with a single Aadhaar number. Therefore it is important to verify that the IEPF form-5 is error-free absolutely. Other required documents are prepared according to the case and double-checked during final submission.

Final submission: In the Ministry of Corporate Affairs portal, the IEPF form 5 is submitted along with other required documents that are forwarded to the respective authorities for further validation.

Tips for IEPF recovery

You should contact a sound financial, legal advisor or company to recover your shares in time, avoiding hassle. Some companies work with several clients around the world who help in recovering unclaimed investments, including:

Issue of duplicate shares

Recovery of old or lost shares

The claim of dividends or shares from IEPF authority

Wrapping Up!

It is important to recover your unclaimed shares in time. The more you delay, the more the amount builds up. You can contact various services to get help and recover your unclaimed shares from IEPF. They will give you the proper advice and solutions you need as per your requirement.

[chhotacfoin]

Difference Between ESOP and Sweat Equity Shares

Distinction Between ESOP and Sweat Equity Shares

Employees Stock Option Plan (ESOP) and Sweat Equity Shares are two strategies for giving offers by an organization to its Employees and furthermore can expand the offer capital of the Company. Both ESOP and Sweat Equity Shares are given according to the arrangements of the Companies Act, 2013 and Companies (Share Capital and Debentures) Rules, 2014. Nonetheless, the recorded organizations moreover need to agree with the arrangements of the Securities Exchange Board of India (SEBI) Regulations/Guidelines for the issuance of these offers.

Employees Stock Option Plan (ESOP)

A Employees Stock Option Plan (ESOP) is a worker advantage plan that gives laborers proprietorship premium in the organization. Organizations regularly use ESOPs as a money procedure to adjust the interests of their Employees to those of their investors.

Employees Stock Option is characterized under Section 2(37) of the Companies Act , 2013.

The Employees Stock Option implies the alternative gave to the chiefs, Employees or officials of the organization or its holding or auxiliary organization, which gives the right or advantage to buy in or buy the portions of the organization at a foreordained cost on a future date.

Sweat Equity Shares

Section 2(88) of the Companies Act, 2013 characterizes Sweat Equity Shares. The perspiration value shares mean offers gave by an organization to its chiefs or Employees for non-cash thought or at a rebate for making rights accessible in the idea of licensed innovation rights or giving know-hows or any offering any benefit increments in any structure.

The key differences between the ESOP and Sweat Equity are detailed below:

S.NO

BASIS

EMPLOYEE STOCK OPTION PLAN

SWEAT EQUITY SHARES

1.       

Meaning

As per Section 2(37) of the Companies Act, 2013 “employees stock option” means the option given to the  directors, officers or employees of a company or of its holding company or  subsidiary company or companies, if any, which gives such directors, officers  or employees, the benefit or right to purchase, or to subscribe for, the  shares of the company at a future date at a pre-determined price.

As per Section 2(88) of the Companies Act, 2013 “Sweat Equity Shares” means that such equity shares as are  issued by a company to its directors or employees at a discount or for  consideration, other than cash for providing them know how or making  available rights in the nature of intellectual property rights or values  addition, by whatever name called.  

2.       

Nature

ESOPs are issued in the form of an incentive to  directors and employees. It serves as a retention plan to Directors and  Employees They do not create an obligation, and it is in the form of a right  given to employees to exercise their option to purchase the shares.  

Sweat equity shares are issued to the employees or  directors as consideration for providing intellectual property rights or  know-how or value additions to the company which play a significant role in  company’s growth.  

3.                  

Can be issued to

(a) a permanent employee of the company who has been  working in India or outside India; or (b) a director of the company, whether  a whole-time director or not but excluding an independent director;  or (c) an employee as defined in clauses (a) or (b) of a subsidiary, in India  or outside company but does not include– (i) an  employee who is a promoter or a person belonging to the promoter group; or  (ii) a director who either himself or through his relative or through any  body corporate, directly or indirectly, holds more than ten percent of  the outstanding equity shares of the company.”

(a) Permanent employee of the Company whether working in  India or outside India;   (b) Director of the Company, whether a  whole-time Director or not; (c) Employee or Director as mentioned above of a  Subsidiary in India or outside India, or of a Holding Company of the Company.

4.       

Issuing Norms

No such norm, company can grant ESOP at any point of time  after incorporation.

Company can issue Sweat Equity shares only after remaining  in business for 1 year.

5.       

Quantum of issue

Company has no such restrictions in issuance or grant of ESOPs.

For one time: The  Company shall not issue Sweat Equity Shares for more than 15% of existing paid-up  share capital or issue value of shares Rs. 5,00,00,000/- (Rupees  Five Crores), whichever is higher. For lifetime: The  Company shall not issue Sweat Equity shares for more than 25% of the paid-up Equity  Capital at any time.  

6.       

Pricing of issue

There is no pricing guideline defined for issuance or  grant of ESOPs. The company decides the exercise price.  

The price of the Sweat equity shares shall be determined  by the Registered valuer by  providing valuation report as the fair price giving justification for such  valuation.

7.       

Consideration

The consideration for ESOP has to be paid in cash.

The consideration for sweat equity shares is other than cash or at a discount  which may be partly cash and party non-cash

8.       

Lock in period

There is no lock-in period. The company decides the  lock-in period.  

It has a compulsory lock –in period of 3 years.  

9.       

Registers

The Company shall maintain a Register of Employees Stock Options in Form SH-6.

The Company shall maintain a Register of Sweat Equity  Shares in Form SH-3.

10.   

Tax Implications

(i) Upon allotment of Shares: The  employer will have to compute the perquisite value of ESOP taxable in the hands of the employee under “income from salary”  and deduct tax on such shares. (ii) At the time of sale: 1) Less than 12 Months: It  will be considered as a short-term capital gain. 2) More than 12 Months: It  will be considered as a long-term capital gain.

At the time of allotment: – sweat  equity shares will be taxable in the hands of employee under head  “Salary” in the year in which the shares are allotted or transferred to  employees.   At the time of sale:- Capital gains are taxable in hands of employees in the  year in which shares/securities are transferred.  

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SEBI issues guidelines on issuance of non-convertible debt instruments along with warrants

SEBI issues guidelines on issuance of non-convertible debt instruments along with warrants

SEBI has issued guidelines for non-convertible debentures with warrants products, whereby it made the electronic book platform (EBP) mandatory for the non-convertible debt instruments(NCD) portion of the issue. The move is aimed at streamlining the procedure of issuance and applicability of the EBP mechanism on the NCDs portion. EBP platform mechanism shall be mandatory for NCDs portion of the…

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QIP mechanism: Sebi makes e-book platform mandatory for NCDs portion

QIP mechanism: Sebi makes e-book platform mandatory for NCDs portion

Markets regulator Sebi on Friday came out with guidelines for non-convertible debentures with warrants products, whereby it made electronic book platform (EBP) mandatory for the NCDs portion of the issue. The move is aimed at streamlining the procedure of issuance and applicability of EBP mechanism on the NCDs portion. In cases, wherein the size of NCDs portion is above threshold prescribed…

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Foreign Investment in India | Foreign Direct Investment Opportunities

Foreign Investment in India Foreign Direct Investment Opportunities

Brief Background- Foreign Direct Investment opportunities is an important monetary source for India’s economic development. Foreign investment in India has been the direct outcome of the liberal trade policies undertaken and implemented by the successive governments. In 2019 India became a part of the top 100-club on Ease of Doing Business club.

Foreign Direct Investments (FDI) are commonly made in open economies that have skilled workforce and growth prospects. FDIs not only bring money with them but also skills, technology, and knowledge. The Indian government’s favorable policy regime and good for the business environment as it ensures that foreign capital keeps coming into the country. Our Govt. has taken no. of initiatives in previous years such as relaxing FDI norms across sectors such as PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Introduction

Foreign Direct Investment is made by the foreign entities in Indian Companies with the objective of acquiring some kind of control in the Indian companies.

It may be noted that an entity that is not incorporated abroad under any law (for ex: trust, unregistered partnerships, etc) cannot make a foreign direct investment in India.

Who can make FDI?

Foreign Direct Investment can be made by a person resident outside India, except a citizen or any entity incorporated in Pakistan, A citizen of Bangladesh can invest in India only under the Government Approvals Route of FDI policy. It is to be noted that the FDI from a citizen belongs to Pakistan or from any entity formed in Pakistan can invest in India only under the Government Approval Route of FDI policy, in sectors/activities other than defence, space and atomic energy.

Types of Instruments of FDI

Foreign     Direct Investment may be by way of investment in equity shares, fully     compulsorily convertible preference shares, fully compulsorily convertible     debentures.

Other     types of preference shares or Debentures are considered as debt.

Accordingly,     all norms applicable for External Commercial Borrowings related to     eligible borrowers recognized lenders, amount and maturity, end – use     stipulations, etc shall apply. However, optionally convertible preference     shares/debentures may be to a person resident outside India under the FDI     Scheme, provided option to convert can be exercised only after a minimum     lock-in period of one year or such minimum period as prescribed under the     FDI regulations, whichever is higher (e.g., defense and construction     development sector where the minimum lock-in period of three years has     been prescribed.

Further,     the inward remittances received by the Indian Company vide issuance of     GDR/ADRs and FCCBs are treated as FDI and cunted towards FDI.

Procedure for approval for Foreign Direct Investment Opportunities in India

In general, Foreign Direct Investment in India can be made under the automatic route. However, in some cases government approval is required for foreign direct investment in India.

Under the Automatic Route, the foreign investors or any Indian entity does not require approval from the RBI.

In Approval Route, prior approval of the Government of India through the Foreign Investment Promotion Board (“FIPB”) is required to be taken.

Industrial Policy towards Foreign Direct Investment in India

Foreign investment in shares in any industry up to 100% is permitted except the following:

1.   Proposals falling under compulsory industrial licensing

Presently, the compulsory licensing list contains only 6 articles which are:

Brewing     and Distillation of alcoholic drinks.

Electronic     Aerospace and defence equipment.

Cigarettes     and Cigars of tobacco and manufactured tobacco substitutes.

Industrial     explosives.

Hazardous     chemicals.

Drugs     and pharmaceuticals.

2.Investment of more than 24% in equity, if the manufacturer item is reserved for small scale undertaking. A small scale industrial undertaking is not permitted to have more than 24% equity participation in its paid-up capital from any other industrial undertaking whether, domestic or foreign.

Where the equity holding in a small scale industrial undertaking by any company, whether domestic or foreign exceeds 24% the industrial undertaking loses its small scale status. Thus, it will have to obtain an Industrial License.

3.   Items requiring industrial license in terms of the locational policy of New Industrial Policy, 1991

All Industrial undertakings are set free to select the location of their project. However, in the case of 23 cities with a population of more than 1 million, as per the census done previously, the proposed location should be at least 25 km away from the Standard Urban Area limits of the city.

However, if any area has been designated as an “industrial area” before 25th July, 1991, then in that case restrictions of 25 km shall not apply.

It is to be noted that in the case of non-polluting industries such as electronics, computer software, printing, etc. the aforesaid provisions are not applicable.

4.   Proposals outside the Sectoral policy/Caps or in sectors where Foreign Direct Investment is not permitted

Atomic     energy

Retail     Trading( except single brand product retailing)

Gambling     and betting including casinos etc

The     business of Lottery including any Government or private lottery, online     lotteries, etc

Nidhi     Company

Trading     in Transferable Development Right ( TDRs )

Real     Estate Business

Agricultural     Activity( except development and production of seeds and planting     material)

Plantation     Activity( except Tea Plantation)

Activities/sectors     which are not opened to the private sector for any kind of investment.

Besides foreign investment in any form, Foreign Technology Collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities.

Click here for –  Foreign Direct Investment in Limited Liability Partnerships

More Information Click Here: https://www.letscomply.com/foreign-investment-in-india-foreign-direct-investment-opportunities/

Contact Us:

+91-97-1707-0500

info@letscomply.com

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Issuance of unsecured optionally convertible debentures by a Private Company

Issuance of unsecured optionally convertible debentures by a Private Company

A private limited company desirous of issuing OCD is required to follow the procedure prescribed under the Companies Act, 2013 (Companies Act), which inter alia includes the approval of shareholders by way of a special resolution and a debenture redemption reserve account to be created out of the profits of the company, for the purpose of paying dividends. It has to comply with Section 71 of the…

[juudgeblog]

Rules regarding Issuance of Stock Option Plans

In this article, Porus Confectioner, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the rules regarding issuance of stock option plans.

Introduction

Human Resources is a key talent that drives success in an increasingly knowledge-based corporate environment. The need to obtain, retain and reward talented people has become an important driver to get the best from Employees. ESOS (Employee Stock Option Schemes) is one such tool to make employees a part of the team that brings growth and profitability, by creating a sense of ownership, working towards a common aligned vision and purpose and rewarding persons who have thereby grown the company.

This note proposes to explain the key aspects of Stock Option plans and the legal position and procedures.

As per SEBI (Share Based Employee Benefits Regulations) 2014  the following kinds of share benefits briefly explained below are covered :

Employee Stock Option Plans (ESOPs): contracts that give employees the right, but not the obligation, to purchase shares at a fixed price.  This is the most commonly used structure.

Employee Stock Purchase Plans (ESPPs): these plans offer an employee the option to buy the shares at a discounted price.

Stock Appreciation Plans (SARS): plans that offer an employee to receive cash or share to the extent of the excess of market price over the exercise price.

General Employee Benefits

Retirement Benefit Schemes

Our focus here would be to discuss the most popular option, Employee Stock Option Plans (ESOPS).

Employee Stock Option Plans ( ESOPS)

Definitions

ESOPS are contracts or schemes that give employees the right, but not obligation to purchase or subscribe to a specified number of shares of a company at a Fixed price (called Exercise price)  after a specified lock-in period. The exercise price remains constant, whilst the share price may move up or down.

The following laws cover the issuance and administration of ESOPS:

Companies Act, 2013 and allied rules

SEBI (Share Based Employee Benefits) Regulations 2014 and amendments

Foreign Exchange Management Act, 1999

Income Tax Act 1961

Department of Public Enterprises Guidelines, where applicable

ICDR Regulations 2009

Section 2 (37), Companies Act 2013,  defines Employee Stock Option thus :

“Employee Stock Option“ is the option given to directors, officers or employees of a company or it’s holding or subsidiary company or companies, if any, which gives directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a predetermined price.“

As to who is an Employee is also spelt out in the 2(1)(f) of Share Based Employee Benefits Regulations, 2014 as well as Companies Act, 2017.  Both definitions are similar.

ESOP Procedure

The SEBI (Share Based Employee Regulation) 2014 and its amendments up to March 2017 is comprehensive and details all the requirements for setting up and administration of ESOP Plans, whether through the Direct or Trust route.

Ordinarily, though it can be, ESOPS are not given to all employees.  The first step would be to set up the ESOP and understand and identify the seniority level of employees would be offered ESOPS.

Eligibility for ESOPs

Guidelines under Companies (Share Capital and Debentures) Rules clarifies who is eligible for ESOPs:

Permanent employee of a company who has been working in or outside India

Directors of a company, whether whole time director or not, but excluding an independent director

An employee as defined in Clause a and b of above rules of a subsidiary, in India or outside company but does not include

An employee who is a promoter or person belonging to a promoter group

A director who either himself or through a relative or through any body corporates, directly or indirectly, owns more than ten per cent of the outstanding shares of the company.

Once a company has identified eligible employees the next steps would remain as follows:

Prepare the ESOP Scheme

Have the ESOP Scheme approved by the Remuneration and Compensation Committee at a Board Meeting. This is described in further details below.

Convene Shareholders Meeting with details as specified in Rule 12, Companies (Share Capital and Debenture Rules) 2014. The details to be included are –

total number of stock options granted

identification of the class of employees eligible

appraisal process for determining the eligibility of the employee

details of vesting and vesting and lock in period

maximum no. of options that can be granted per employee

Directors Report

Once the Scheme is ready and enforceable, the company, in the Directors Report is required to furnish all details in the Year with the following details:

Options granted, vested and exercised and total shares exercised,

exercise price,

options lapsed,

any variations in terms of options,

money realised, options in force, etc.

Where the option is not taken by an employee, it shall be renounced to the institution, since they are not transferable.

Also required to be mentioned are options granted to:

Key Managerial persons

Any other employee who has received more than 5 % of total allocated options

Employees who have been granted more than or equal to  1 per cent of the Issued capital

Register

The company shall maintain a register, at the registered office,  of Employee Stock Options and shall update the options immediately with regard to the particulars of the option granted. The entries in the register are to be authenticated by the Company Secretary or a person authorised by the Board.

Remuneration and Compensation Committee

The members of this Committee are constituted by the Board and as per Section 178 of the Companies Act 2013 and may act as the Compensation Committee for the purpose of approvals and implementation of the SEBI ESOP guidelines. The role of the Compensation Committee is to ensure that detailed terms and conditions of the plan are in accordance with all laws, including Compliance with Prohibition of Insider Trading Rules and Prohibition of  Fraudulent and Unfair Practices relating to Securities markets regulations. The role extends to ensuring adherence to guidelines by the delegation of powers to officers of the company as required.

Shareholders Approvals

The requirements of Shareholders approvals for the ESOP are enumerated in the SEBI rules and require shareholders approval by passing a Special Resolution.  The scheme approvals need to cover:

Description of schemes

Total number of options, shares, etc, to be granted

Identification of classes of employees eligible to be beneficiaries and appraisal process for identifying the employees in terms of performance parameters  

Requirements and period of vesting including the maximum period in which vesting must happen.

Exercise prices and formulae, periods, methods of valuation and maximum quantum of benefits per employee

Whether the scheme is to be administered directly or through trusts.

Guidelines to ensure Fair Value of shares/options and disclosure in Directors Report

In the following circumstances separate shareholder approvals are required :

Where the acquisition of stocks from the Secondary market is needed for implementation of the scheme. The Limits fixed for acquisition should be within the SEBI rules.

Similarly, where the secondary market acquisition is through a trust, to maintain the maximum 5 % cap as required by SEBI rules.

Where there is Grant of options to employees of subsidiary or holding company

Where Grant of options/Shares exceeds 1 % of the Issued Share Capital of the company during a particular financial year.

FEMA provisions for ESOPs

Many persons entitled to ESOPs work in foreign countries. The provisions of FEMA (transfer of issue of securities to a person resident outside India) Regulations, 2000, FDI regulations and Policy cover the relevant provisions in such cases.

The regulations permit Indian companies issuing shares to employees abroad or employees directors of holding/subsidiary companies abroad provided:

The ESOP scheme is as per companies Act, SEBI rules, and Companies (Share and Debentures) Rules of the Central Government

That all sectoral caps have been observed and adhered to

Where Foreign Investment in a company is as per specific FIPB guidelines, the option/share has to be in accordance with FIPB approvals

Prior approvals for any such options/shares for Bangladesh or Pakistan

RBI may also require specific reports for options/shares to Non Residents at such frequency as set out by RBI in the specific form within set time limits of the issue of shares.

Income Tax Act 1961

Generally, ESOPS for employees are tax deductible in the books of the company being considered a legitimate expense for retention and promotion of employee performance. The discount or difference is wholly and exclusively chargeable as legitimate expenses, though care should be taken to ensure that differences or discounts ware reasonable and properly accounted, to stand scrutiny from income tax authorities. The SEBI (Share Based Benefit Regulation) 2014, gives the accounting requirements also to be set out for recognition of the Fair value of the shares. Here, the SEBI Guidance note for Accounting for SEBI share based employee benefits rules need to be followed.

With most Corporates having moved to IND-As accounting standards, these would mostly now be followed for accounting and tax purposes in India.  

Trusts

Before 1999 a number of ESOP offers Plans were set up as trusts since organisation felt the need to create a separate structure to monitor and control ESOP administration.

However, on noticing sharp practices which gave rise to fluctuation in share prices, using ESOPs shares and options for purposes other than strict rewarding of employees, including share manipulation, SEBI guidelines had prohibited trusts of listed companies from the purchase of secondary market shares in settlement of their employee options. This caused an inconvenience to listed companies who then were at unable to settle their employee plans

However, by subsequent amendments to the SEBI (Share Based Employee Regulations), listed companies were again permitted to purchase shares from registered stock exchanges in settlement of employee stock options.  However, the Trust based plans are far more onerous in terms of Compliance. There are rules, reporting standards, information to stock exchanges, monitoring and controls, limits on the number of shares that can be purchased from the secondary market in a particular year, disclosures with regard to voting rights if the shares are not exercised directly, disclosures by the trust, etc to ensure strict compliance with the purpose for which the shares were given as well rules to ringfence existing shareholder rights.

All such requirements are detailed in the SEBI rules for listed companies to follow.  To please take note of the fact that the trust structure is very onerous and is to some extent, difficult to administer, given the stringent rules.

Conclusion

The above set out the procedure and requirements for the offer of ESOPs to employees more on a direct route. The onerous requirements in case of a trust for the purpose have also been explained.

Companies, especially in the new growth knowledge sectors of Information Technology, Business Process Outsourcing, Pharmaceuticals and web-based service offerings have taken the benefit of the offer of ESOPs to retain and upgrade talent.  A number of listed companies also offer ESOPs for senior managerial staff. The ESOP rules are now set in place and rules are set in place for listed corporates to follow in practice.

However, the real benefits of ESOPs accrue to the relatively smaller unlisted companies who need to draw and retain experienced and knowledgeable talent. The options for unlisted companies are limited to share buy back or buy off from Venture Capital or PE Funds or await listing for employees to benefit. SEBI guidelines exist for unlisted companies too and even here the practice is more or less set in place.

The post Rules regarding Issuance of Stock Option Plans appeared first on iPleaders.

Rules regarding Issuance of Stock Option Plans syndicated from https://namechangersmumbai.wordpress.com/

[angrycollectordaze-me-blog]

Essay代写：Financing options for listed companies

下面为大家整理一篇优秀的essay代写范文- Financing options for listed companies，供大家参考学习，这篇论文讨论了上市公司的融资选择。在上市公司的融资选择影响因素方面，股权融资实际的低成本、特殊股权结构和不成熟的债券市场是上市公司偏好股权融资的根本原因，再融资政策的导向作用也是造成上市公司不合理再融资行为现象的重要原因之一。另一个影响因素是目前存在的高资产负债率，上市公司在上市前所具有的过度负债的不合理资本结构促使其在上市后偏好股权融资来降低资产负债率。上市前的高负债率的资本结构往往会影响上市公司的融资决策，并且可能会带有一定盲目性。

The capital market develops with the development of the economy, the stock and bond markets are developing continuously, and the economic growth rate is a little weak. However, the trial of science and technology innovation board and the implementation of registration system are bound to bring a new wave of competition in the capital market. In this context, corporate financing, as a necessary condition for the continuous operation and scale expansion of an enterprise, is of self-evident importance to the orderly development of the capital market. As an important part of China's market economy, the financing choice of listed companies after listing is very important to the development of China's economy.

China's capital market is booming because the government attaches great importance to capital market, and listed companies are springing up like mushrooms. The establishment was announced by President xi jinping at the opening ceremony of the first China international import expo (ciie) on November 5, 2018. It is a new section independent of the existing main board market, and a pilot registration system will be carried out in this section, bringing a new atmosphere of reform to the capital market. With the further deepening of China's capital market and economic reform, China's market economy is gradually moving towards prosperity, and the capital market will usher in a healthy new atmosphere with the beginning of science and technology innovation board and registration system. Large and small listed companies emerge in an orderly manner to promote steady economic development. However, in the current economic situation, the operation of listed companies can not only rely on the resources of enterprises, but also need financing to create more benefits. As one of the three major decisions of financial management, financing decision is an important aspect that affects the operation of listed companies and an important guarantee for the orderly and healthy development of listed companies. Listed companies will become increasingly important in the social economy. However, the financing choice of listed companies is of vital importance not only to the fund demand of its own scale development and operating efficiency, but also to the stock market and even to the economic development needs.

Foreign experts and scholars have been updating relevant theories on the financing structure of listed companies. In 1952, David Durand put forward three classical capital structure theories, namely, net income theory, net operating income theory and traditional theory. In 1958, the MM theorem proposed by American economists modigliani and miller also became a classic in financing theory for a time, paving the way for later theoretical research. Although the MM theorem was established under very ideal conditions and divorced from reality, its position in financing theory is indelible. Later, many economists revised MM theorem and made innovations from the aspects of enterprise capital structure and enterprise value, and put forward the so-called "balance theory", miller model and new comprehensive theory. However, due to the particularity of China's economy, these theories are often not applicable.

China's listed companies have a strong preference for equity financing. They took 397 valid samples and conducted a questionnaire survey on the financing methods of companies after listing, among which 380 companies participated in the questionnaire, and concluded that about three-quarters of enterprises preferred equity financing. In order of the cumulative amount of financing, it can be concluded that: short-term borrowing -- profit retention -- rights offering -- long-term borrowing -- issuing new shares -- issuing ordinary corporate bonds -- issuing convertible bonds -- other order. Financing of listed companies in China in terms of raising, relative follows the pecking order theory, the tendency to prefer using endogenous financing, but also exist in equity financing higher than bond financing and the characteristics of short-term borrowing amount ranked first, it may be that the short-term financing long-term financing easier in operation, the enterprises have to make short-term loans by operating pressure.

Another current situation of listed companies is the serious situation of random change of capital investment. According to statistics, 57.36% of all companies raising funds have changed their capital investment, 60.72% have changed their capital investment after allotment, and 49.47% have changed their capital use after allotment. This shows that China has a very serious phenomenon of changing the purpose of raising funds, which seriously damages the image of listed companies, increases the difficulty of their refinancing behavior, and also increases the risk of investors, and the phenomenon of excessive financing. Listed companies are hungry for money. Many companies are eager to refinance and will put forward secondary financing plans in a very short time after listing. According to statistics, in 2009, a total of 18 companies listed less than a year before they put forward refinancing plans, raising a total of 27 billion yuan, of which 10 have been implemented.

In the factors influencing the financing options of listed companies, equity financing is the actual low cost, the special equity structure and not mature bond market is the root cause of the preference of equity financing of listed companies, and points out the guiding role of refinancing policy that unreasonable refinancing behavior of listed companies is caused by one of the important reasons. Another influencing factor is the current high asset-liability ratio. The unreasonable capital structure of excessive liabilities of listed companies before listing prompts them to prefer equity financing to reduce asset-liability ratio after listing. The capital structure with high debt ratio before listing often affects the financing decisions of listed companies, and may be blind to some extent.

It can be said that Chinese scholars' research on the financing behavior of listed companies has been constantly updated and developed with the changes of The Times, and has certain uniformity. In recent years, the financing volatility of listed companies in China is very high. From the perspective of refinancing, the pattern has also changed from dominated by rights offering to balanced by additional issuance, rights offering and convertible bonds, which is also related to policy orientation. According to the literature read, the academia generally believes that listed companies have obvious preference for equity financing and the development of bond market lags behind. In equity financing, the phenomenon of heavy financing and light dividend is very serious, there are obvious speculation, illegal and illegal problems. In order to better solve the problems existing in the post-ipo financing, we should further study the financing options of enterprises after IPO, understand the current situation and problems of listed companies' financing, so as to strengthen the effective allocation of resources in the economy and society, which is of great significance to the prosperity of China's economic development.

Internal financing avoids the cost of external interest or dividend payment, has no impact on the company's cash flow, and does not generate operating expenses during financing, which is far better than external financing in terms of cost and time. However, a large amount of capital is often needed in production and operation activities, which must be financed by external sources.

Creditor's rights financing is divided into loans and bonds. The borrowing procedure of the bank is simple, the financing cost is low, but the interest is high, and the repayment and interest payment pressure of the enterprise is great. Corporate bonds refer to the debenture issued by the company and promise to repay the principal and interest within the agreed time. The interest is lower than that of bank loans, but the indirect cost and time cost are high. At present, China's bond market is in a period of booming development, and the status of bond financing in corporate financing is gradually improving. Similarly, borrowing and bonds increase risk as well as leverage.

Equity financing means that a company issues shares in the stock market for financing. At present, there are additional issues, rights issues and convertible bonds. Compared with debt financing, equity financing has its own advantages. Equity financing funds belong to the company's permanent capital, there is no pressure to repay, and do not have to bear fixed interest costs like bonds, low financial risk, but high issuance costs. In China, however, the real cost of equity financing is low.

For a long time, it has been widely held in the academic circle that listed companies in China prefer equity financing. Equity refinancing has experienced from the initial boom of rights offering to the gradually flourishing private placement financing after the introduction of additional issuance, to the current equity financing situation where additional issuance and convertible bonds are the main and rights offering is the auxiliary.

In April 2019, there were nearly 4,000 listed companies in China. According to the data released by the China securities regulatory commission, equity financing plays an important role in the financing of listed companies in China, and also provides an important guarantee for the continuous operation and development of listed companies in China.

On the other hand, the rapid development of China's securities market in recent years, coupled with policy support and stock market risk fluctuations, the scale of bond financing is also expanding.

Through the analysis, we can see that the financing scale of listed companies in China is developing rapidly. The amount of money raised in China shows a rapid growth trend, especially in the first quarter of 2019, the issuance of new shares accelerated, the amount of money raised in China reached a high point, which is a multiple of the previous year, indicating that China's domestic financing situation is good. On the other hand, the number and scale of listed companies gradually increase. It can be said that after several years of trough, the stock market financing ushered in a new round of prosperity. Equity refinancing is still popular. In terms of bond financing, data show that bond financing is no longer the meagre position in corporate financing decisions, and China's bond market is gradually developing.

Around the 20th century, China's bond market development lags behind, the development of the capital market is not balanced, the bond policy is not perfect lead to the degree of cumbersome problems, which prompted the abnormal order of China's market financing, that is, equity financing is higher than bond financing. Relevant data show that this phenomenon has been continuing since 1995, leading to excessive financing costs. On the other hand, the choice of financing mode is largely restricted by financing cost. Because of poor dividend policy, dividend distribution policy is decided by firmly in control of large shareholders, that is, the dividend return for the cost of equity financing is actually controlled, it is certainly more than the bond matures servicing hard rules more attractive, in our country, there is the actual cost of equity financing low anomaly. Furthermore, the unreasonableness of equity division also makes major shareholders have a preference for equity financing.

Beijing Hualu Baina Film&Tv Inc., founded in 2002, is in charge of state-owned assets supervision and administration under the state council of central enterprises China HuaLu group specializing in film and television planning, investment, production, distribution and performance management of enterprise, the specialty is engaged in the field of digital audio and video technology research, hardware and software application development and information culture industry, cultural industry is the only main business covers the central enterprise of large enterprise groups. The registered capital is 10 million yuan. As of December 31, 2015, the total assets of the company are 4,698,073 yuan and the net assets are 389,919 yuan. In 2015, the net profit reached 266,902,300 yuan. In 2012, hualu baina was officially listed on the shenzhen stock exchange with the securities code of 300291, becoming the first a-share listed film and television company registered in Beijing and the only a-share listed film and television company in Beijing so far.

Analysis of the financing structure of hualu baina, we can see that hualu baina listed in 2012, the actual capital raising 675 million yuan, p/e ratio of 82.46 times, can be said to be a good first, three years after the listing, the net profit growth rate of 5.43%, 21.2% and 78.65%, the overall business performance is good, the profit growth rate is fast. In the three years after the listing, the company has issued additional shares for three times, including two successful ones and one in progress. The total net capital raised by the company is 2.486 billion yuan, with unissued bonds.

Listed before, the rate of assets and liabilities of the company is 49.44%, in line with the economic Suggestions to company asset-liability ratio, in 2015, the asset-liability ratio is only 17%, and liabilities are debt service pressure and high rates of short-term loans, to a certain extent weakened the financial leverage effect, increasing the company's short-term repayment pressure, high interest rates to a certain extent reduces the management benefit, make the resource allocation efficiency is low. The increase in short-term lending may be related to the special short-term funding needs of the industry, but such financing decisions are not very rational in the long run. In addition, a large number of additional shares to a certain extent diluted earnings per share, reduce the profitability of the enterprise, there is suspicion of circle of money.

Listed only a few years, hualu baina has a rapid growth capacity. This enterprise has shown the phenomenon of the rapid increase of secondary new shares after the listing of Chinese enterprises. Of course, this does not negate the great development of bond financing in the financing options of Chinese listed companies after listing. Equity financing in China, despite its corresponding advantages, the role of financial leverage is also cannot be ignored, especially the bond market has entered a boom in recent years, the issue of low interest rates can reduce corporate financing cost, suggested the company appropriately raise the proportion of creditor's rights financing, steadily into the bond market, the average cost of capital at optimum levels, improve the utilization efficiency of financing, and attaches great importance to the dividend policy, at the same time pay attention to avoid dilution caused by operating risk.

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New Guidelines On ICO Securities By The CBS

There are new guidelines about the Initial Coin Offerings (also known as ICOs) set by Singapore's central bank which will give guidelines on the procedure of applying for tokens under their new security law. In the document which was named 'A Guide To Digital Token Offering', has the following statements from Singaporean Central Bank and Monetary Authority of Singapore: The issuing or offering of the tokens will be regulated by MAS if the tokens are products of the capital market as per the security and future acts (SFA). Examples of capital market products are futures, securities, contracts, and arrangements that are made for leveraging trading in the foreign exchange. It adds that the structure and characteristics will be examined in order to determine whether or not it is a market product under SFA. Digital tokens have the following, according to reports: Cryptocurrencies have a share, where it provides benefits or represents interests to do with ownership, accountability of the token holder in the corporation and the agreements mutually made among token holders in the corporation among themselves. Digital currencies have a debenture, which constitutes and shows evidence for indebtedness of the one issuing digital tokens as per the money which is lent by a token holder to the issuer. Tokens also have an unit in a collective investment scheme (CIS) which is a representation of the interests and rights in a CIS or the choice of acquiring the right in a CIS. The report has a selection of case studies, showing how the security laws which are administered by MAS apply. However, these are not conclusive or inductive of how the laws may apply in certain cases involving offering or issuance of digital tokens. In the first case study, the focus is on tokens which are tied to rental or sharing of computing power among the users of this platform. MAS has said that this will exclude securities under SFA. In the second case, property development, and operation of commercial buildings will be done by offering digital tokens which represent a share in the company. The regulator states that this will be inclusive of the securities under SFA.These guidelines that have been provided by MAS emphasizes the later comments from the central bank that ICOs needs to be regulated under SFA. The financial regulator announced in August that it will regulate how the ICOs and digital tokens are issued. Singapore was experiencing an increased number of sales of the tokens as a way of raising funds while having concerns about the rise in digital currency which was exceeding the virtual currency. Read the full article

[candlehub-blog]

After US SEC made an announcement about how it would treat Blockchain ICO, Singapore's Monetary Authority of Singapore followed up with a similarly sounding announcement. Both the announcements basically made the same point, issuance of tokens that inherit the behaviour of securities would be treated as securities in the eyes of the regulator. In spite of being called anything else once the asset under question has a claim on dividend or the interests on a company shares / bonds, it is seen as a Securities. Once being classified as Securities, then issuance of tokens is required by law to comply with a certain set of procedure. The procedure like registration of a prospectus before issuing the token. It is then crucial to understand what is Securities. I have created the following picture to allow people to understand what are Securities so that they can adapt their own actions in preparation of their own ICO. If your token represents anything that is coloured red in the attached chart, then without doubt, your token is Securities and the law would come down on you very very hard. I am having mixed feelings about retained earnings. It is a balance sheet item, and if a token represents the "retained earnings" I think for the moment you all err on the side of safety and assume that retained earnings is red as well. Those areas coloured red, especially "Share Capital" includes abilities to vote for appointment of officers, decisions to make like investing in another company. Tokens that have voting mechanism may be treated as having the behaviour of "Share Capital". Anything that concerns prepayments for the main purpose of generation of revenue, is coloured as blue. Granting that prepayments for the time being may reside in current liabilities, we cannot see it as behaving like debentures or bonds as prepayments often contain terms that it is not repayable if services is not redeemed or rendered. A customer who prepays you does not have the inherent rights to vote for how your business is done. The business may through goodwill (and not because of legal obligation) listen to the person who prepays money but he is not obliged to do as he instructs. However, as most DAO is being structured, the DAO is obliged by the design of its smart contract to do as instructed / willed by the token owner - thus in the process may make the DAO not compliant to US SEC or MAS regulation. Few of the notable examples here are illustrated for better understanding of whether existing tokens / coins are compliant to US SEC / Singapore MAS requirements. In any case, this is my own evaluation basing on prima facie observations (on where they land on the chart attached). I have not done a deep analysis of the specific coin design to conclude definitively. In any case, only the Court of Law can conclude definitively, not any lawyer or financial professional. Not even MAS / SEC. So this list is provided on the best effort basis (by matching features to the attached chart) and you are advised to seek professional advice from lawyers / MAS / SEC to confirm. Comply (i.e. Not securities) ---------- Bitcoin Ethereum (seems to have voting features, but no dividend) Litecoin Status Monetha (transaction fee 0.5% to coin owner, borderline) Waves (fuel for token creation, and fuel for transaction) Does not comply (i.e. Securities behaviour) ---------------------- Reidao Starta I have also received more calls on how to structure an ICO. You may get this free tip that I post on facebook. Any further, I expect a fee based arrangement. You may also join our online Telegram group to participate in the discussion. http://bit.ly/2u3Aain

[bohatala-blog]

New Post has been published on Bohat Ala

New Post has been published on https://bohatala.com/brazil-debt-market-analysis-report/

Brazil Debt Market Analysis Report

This report discusses Brazil Debt Market Analysis report, Brazil bond market, Government Debt instruments in Brazil and comparison with Australia and UK markets.

Table of Contents

Introduction.. 2

Historical background of Brazil and its debt market 3

Regulatory frame work of the debt market of Brazil 5

Taxation.. 5

Prudential rules. 6

Bankruptcy regulations. 7

Local exchange characteristics in the Brazil bond market 8

Involvement of the banking sector in the debt market of Brazil 10

Government Debt instruments in the Brazil 14

Commercial papers and the debentures. 14

Asset based securities. 15

International bonds. 16

Non Government debt 17

Credit rating agencies in the Brazil 18

Derivative market of the Brazil 20

Recommendations for the bond market 21

Derivative markets in Australia. 23

Derivative market in the United Kingdom.. 27

Comparison of the derivative market of the Australia and the United Kingdom.. 29

Conclusion. 33

References. 36

Brazil Debt Market Analysis Report – Introduction

This report consists of analyzing the debt market of the Brazil Country. In this way, proper analysis of the country is being made in relation to considering its historical background, regulatory frame works and the factors affecting the debt market position of the country. In addition to this, the exchange rates characteristics of the Brazil economy and the involvement of banking sector in the debt market and its position, debts instruments issued by the government, credit ratings of the companies and the aspects of the derivative market of the Brazil economy are being considered. The debt market has a significant role in relation to the economic stability and increasing the success initiatives. In this respect, the report comprises of analyzing that how much the debt market of the Brazil economy is contributing towards its success.

Furthermore, the determinants of the report consist of the analyzing the derivative market of the Australia and the United Kingdom because of the financial turmoil created by the debt markets. In this regard, over the counter and the exchange trade derivatives of the both countries are being evaluated in the report and a comparison is being in relation to the debt markets of the both countries. Thus, the basic structure of the report is based on evaluating the impacts of debt markets and its determinants because it is an important factor in setting the financial stability and instability of the economies.

‘Part A‘

Historical background of Brazil and its Debt Market

The country of Brazil came into being in 1500 and its initial colonial systems were based on the Tupinamba Indians. The people in the early history of the country started to develop their interest in the plantations and encouraged the laborers to work hard on these plantations. During the period from its development to the period of 1763 many of the changes in the structure of the country have been made and the people have explored the mines of gold, coal and many other resources to live and earn their livelihood.

During the period of success and innovations in the country numerous levels of the political advancements have been made which have been affected by the European culture. The explorations continued in the country and the people invented the resources of cotton, interior, tobacco and sugar resources. The period after the 1765 was the initiation of the period of industrial development in country. In the history of the Brazil, many of the Royal families came and hold the charge of the country including the period of Dom Jao and Rio. Currently, the innovations of the world have contributed to the developments and it is operating with great reputation on the map of the world (Nytimes.com, 2016).

In relation to the historical developments, the bond market in the Brazil was not much developed up to 1960. There were laws implemented on this market which limited the interest rates to 12% which made the debt securities and government securities unattractive for the economy. After this period, the 12% cap was decreased and the bond market started to incorporate the effects of the inflations. In this regard, the higher level of inflation in the economy led the government to incorporate the dynamic measures in the implementation of the interest rates and the inflation adjustments. Inflation rates continued to increase in the period above 180’s and the investors in the economy who have invested in the inflation indexed bonds faced higher level of losses in that period.

In the later period of the 1986, the central bank was provided with the authority to make it’s additions in the bond market and affects the monetary policy in its own way. The early indexation policies of the banks were failed and the bonds with indexed inflation replaced the bonds with no indexed inflations. Thus, the interest payments in the country were changed and the payment of interest rates on the maturity dates was considered as the best policy to incorporate the debt in the financial policies of the bank.

The policies of the country kept changing and the government of the Brazil has attempted to exempt the foreign investors in the economy from the income tax if they are holding the government treasury and other bonds. This was done by the government in an attempt to make contributions to the debt market and make it an attractive market in the world wiled sectors (Ballve, 2014).

In relation to the attraction policies of the government, the participation of the foreign investors in the economy has increased and the debt market of the Brazil has started to increase. In this regard, the previous marketing conditions of the economy indicate that the debt market is off significant threat because of the marketing conditions and investors’ perceptions. On the other hand, it can be said that the country has lower sovereign risk because of the international investors are making the tradeoff’s with the economy and portfolio return risk is improved. The outlook of the debt market of the Brazil is good because of the efforts made by the government in relation to increasing its effectiveness in the economy.

It can be regarded that changing trends in the worldwide inflations and the interest rates are also going to affect this market because the past trends in this economy have been making contributions to the debt market of the Brazil. In this way, the future of the debt market of Brazil cannot be estimated because there are continuous fluctuations in this market. The government and the investors are the biggest factors in relation to operating and managing the risk of this sector and changing its conditions.

Regulatory Frame Work of the debt market of Brazil

There are many kinds of laws and regulations imposed on the bond market of the Brazil. From past to present, there have been many kind of regulatory documents imposed on the bonds market of the Brazil such as 6385 law of the 1976, 9475 law of the 1997 and the 10303 law of the 2001. In this respect, the laws and regulations considered to be implemented on the bonds market of the Brazil consist of taxations, prudential rules and bankruptcy policies and the standards (Cbonds.com, 2016).

Taxation

The taxation laws in the debt market of the Brazil consist of the income tax, the IOF tax and the CPMF tax. IOF tax is applied on the transactions which have holding period less than the 30 days whereas the CPMF tax is applied on the bank account and the cash flows out of the investments at the rate of 0.38%. In addition to this, the income tax applied on the Brazil economy consists of 22.5% in the period of 2005. The interest payments on the bonds are based on the deductions of the withholding tax.

The taxation policies of the government have been problematic for the bond market of the Brazil. This is due to the reason that the holder has to pay full tax on the whole period in which the binds are holed by them. On the other hand, the buyers only have to pay the tax on the period of the trade of the bond. This situation is becoming worsening for the economy because of the higher number of the individuals and the companies have started to make direct trade relations with the economy and the growth of the bond market in the Brazil have become stagnant.

Prudential rules

These are the rules applied to the companies having the CVM bonds in trade publically. In relation to this law, the companies or the bond issuer should have to register itself with the CVM. It is a restriction in the bond market of the Brazil that the only registered bonds can be traded in the primary and the secondary markets. In this way, instructions of the CVM in relation to the bonds market are the restrictions on the trading of the bond and other kinds of the securities. In accordance with these laws, a book building procedure is implemented on the bond holders which require the consultations procedure to be implemented. The bond holders should have to make consultations with the regulators and the record of these consultations should have to be kept by the companies and the holders (Ricardo Leal, 2006).

In addition to this, the prudential rule requires that the bond holders should have to be represented by the fiduciary agents which are regarded as the protector of the interest of the bond holders. In this way, this policy of the regulatory bodies is good in order to support the bond holders by notifying them when the issuer has not fulfilled its duty with regards to the issuance of the debt and the relevant facts.

Moreover, the higher level of the restrictions have been imposed on the pension funds holders that the local government is not allowed to hold more than 20% of the holdings from only one bond issuer in the corporate bonds sections. On the other hand, the pension funds holders are allowed to hold the 100% of the treasury funds. These policies have been implemented in relation to decreasing the values of the corporate debt and increasing the values of the treasury securities. Thus, it can be analyzed that the corporate debts are not significantly supported by the central Bank of the Brazil and it is imposing the penalties on the corporate debts which are not relevant for the treasury securities.

Bankruptcy regulations

In 1945, the bankruptcy laws in relation to the bond market were imposed. The bankruptcy standards were based on the implementations of the standards which give priority to the collateral bond holders, tax authorities and the employees. In this regard, the policies are implemented for securing the rights of the bond holders in the case of bankruptcy. In 11101 law paper, a reorganization procedure was implemented in relation to the securing the rights of the creditors, such as the fixed and floating collateral holders. In this way, the legal issues should have to be resolved before the creditors are in the charge of the selling the assets. Basically, the law does not incorporate the significant level of distinguishing factors among the creditors and the bond holders rather it is distinguishing in the factors of the collateral (Leal & Carvalhal-da-Silva, 2008).

According to the laws issued, the bankruptcy of the company will not be significantly impacting the bond holders because in the case of bankruptcy, the bondholders will be paid as first. In this way, different kind of the bonds issued in the Brazil does not pay any kind of the collateral. It can be analyzed that the conditions of the bondholders in the economy of the Brazil in relation to bankruptcy is lower so they are not offering the collateral bonds to the holders. This is due to the reason that the potential issuers will not get benefit from the issuance of the bonds in the collateral.

Local Exchange Characteristics in Brazil Bond Market

The local exchange characteristics in the bond market of the Brazil are set by the government. In this regard, the exchange characteristics in the bond market are based on the yield curve, diversification risk in the external markets and the reducing the external level exposure. In relation to these policies, the maturity of the public debt security is challenging in this industry of the Brazil. There are lesser concerns in relation to the average maturity period from the local exchange companies in the Brazil. According to the policies of the government, the average maturity period in the exchange debt securities is 2 years and for the government exchange trading bonds, this rate is more than 3 years (Teixeira, 2013).

It is analyzed that the private investors in this economy prefer the short term variable rate debts because of the facts that the longer debt period due to the exchange rates policies are not beneficial for them. In addition to this, many kinds of the local investors are taking the facility of swapping their bond exposure with the fixed rates bonds traded which are at lower risk detriments to the investors. The policies in the traded security market in the Brazil market are creating the opposite position. Thus, the characteristic of the floating trading markets are shifting towards the fixed exchange rates and the growth in this effect is expected in the market.

The Swaps in the trading debt security markets usually provide the benefits of mitigating the exchange rates risk in the economy. The investors start to exchange their traded bonds with other bonds which are exposed to less risk. In this way, the confidence of the issuers and the holders is increased due to the capacity of maintaining the market risk exposure due to the change in the debt markets. This policy in the Brazil debt market is operated by the government in relation to decreasing the level of debt risk consideration. The reason is that the crises period has given the higher level of the experience to the government and the investors to deal with the exchange exposure.

Moreover, the characteristics of decreasing the maturity of the exchange period are also being considered in the debt market of Brazil. The reason is that the lower level period of the exchange could result in benefiting the debt issuer and the holder in a way that they will not have to incorporate the market fluctuations risk such as interest rate risk for so long and the deliberately worsening positions of the market will not be affecting both bond holders and the issuers. Thus, the exchange rate risk does not heavily affect the efficiency of the debt issuing.

Moreover, the participation from the different kind of investors has increased in the diversified bond securities. The reason is that some bond securities are attached to the lower risk and others are attached to the higher level of the risk which results in making the different kinds of trading trends. The banks in the Brazil Economy are trying to invest in the short term trading debt and they are matching it with their short term liability positions. Therefore, the domestic exchanges in the debt trading market of the Brazil are causing the significant changes in the economy and the trend is changing as well (Teixeira, 2013).

In addition to this, the pension funds are trying to invest in the long term hedging funds and they are trying to implement the policies of the mitigating the long term inflation risk in the debt market of the Brazil. In addition, the nonresidents in the Brazil are trying to take the advantage of the fixed rate instrument for the purpose of having the lower level of uncertainty in the market.

Involvement of the banking sector in the debt market of Brazil

The credit spread in the economy of the Brazil can be considered as the highest level. In this regard, the role of the banks is significant in relation to reducing the credit spread. The policy of the companies in relation to mitigating the credit spread is based on the provision of syndicated loan. The syndicated loan is the loan provided by the group of people to the bankers and operates in the providing the loan facility to the borrowers. These reduce the level of risk in relation to the level of risk in the economies.

In the Brazil, it has been analyzed that the syndicated loan facility has been provided by the banks for supporting the merger and acquisitions. In relation to this facility, he acquiring companies are able to borrow from the banks and they are getting into the syndicated loan by transferring the risk to the banks arrangements. The current analysis states that the level of credit risk is much higher in the economy because of the facts that the higher level of base interest rates operated in these economies. The judicial uncertainty in the Brazil economy is contributing as the factor of higher interest rates in the economy (Paula, 2011).

The credit spreads in the economy is higher because of the facts that the policies of the central bank are not consistent with the regulations. The central bank has attempted to promote the lower interest rates but the credit spread in the economy is rising rapidly. The reason is that the base interest rate in the Brazil is continuously fluctuating and it is causing the bad equilibrium policies in the economy. In this regard, the monetary policy in this economy is tighter than it is required.

The reason of the higher level of interest rates in the economy is imposed in relation to analyzing the credibility of the central bank. In this regard, the floating and the fixed interest rates mechanism has been introduced for the purpose of making changes in the monetary policy and making it relevant to the  action plans suggested by the government. In this regard, it is expected that the equilibrium pricing mechanism will be introduced by the Central Bank of the Brazil.

Additionally, it is analyzed that the government has taken the actions for the regulating the fiscal needs and making the regulations to be effective in the country. These fiscal needs are implementing the pressure on the external economy and private debt levels which is an effect of the equilibrium hypothesis. Moreover, the central bank of the Brazil has attempted to make changes in relation to making the fit in with the international policies in the Brazil.

They are trying to convert the real time interest rates policies that are relevant for mitigating the external economy pressure on the interest rates of the Brazil. In this way, the central bank is trying to make conversion easier according to the international policy initiatives and the decreasing the impact of the higher level of fluctuating interest rates in the Brazil. The central bank of Brazil has developed a project named as the Credit risk center which helps in analyzing the threatening position in the economic factors. This project is aimed at analyzing the credit risk which can be caused through the increase in the credit spread above the $5000 of the United States risk.

However, a major threat can be analyzed on the policies in relation to the privacy concerns. The data of the project of the Central credit risk center is only accessible by the authorized persons who are responsible for making policy initiatives in the Brazil. The central bank of the Brazil is not ready to bear any threat to the data and they are implementing the privacy constraints which restrict the data to be only accessible by the financial institutions and the Central bank.

The main purpose of this project is to obtain the authorization from the debtors in order to promote the public consultations polices and increasing the debt base in the economy. Thus, it is expected that this project will help in reducing the cost of debt because of the availability of the higher level of information in the market about the borrowers and the lenders (Leal & Carvalhal-da-Silva, 2008).

The Central Bank is promoting the facilities which are providing the realistic level of the credit information sharing among the borrowers and the lenders. In addition, central bank has made plans in order to control the credit center policies and providing the true knowledge in the environment. Thus, they want to introduce the true level of credit record database and helping the investors and the borrowers in an effective way.

Moreover, the central bank has also introduced the plans in relation to making the regulations which are helpful in introducing a fair system of records among the different kinds of financial institutions. The central bank has also pressured the government to change the policies in relation to the tax imposition in the country. In this regard, they have implemented the measures which support the relative growth with regards to trading of the financial securities in the country.

The most important measure in effect was the securitization of the credit spread loans and the credit bills. The securitization helped in replacing the loan agreement and imposing it under the commercial law. Thus, the need for proving the existence of the debt laws has been removed. In this law, the instruments are also provided which will be helpful in implementing the policies of the securitization. According to the new laws and regulation, the banks in the Brazil will be able to issue the credit bills in relation to securing the rights of the real estate owners and facilitating them with the debt facility.

These securities provided by the banks are considered to be safer than the asset backed securities which involve higher level of risk in the real estate market. The banks have the facility to issue the loans for more than 36 months and facilitate the investors in the real estate. It can be analyzed that the banks in the Brazil are playing an important role in regulating the debt facility in the economy and reducing the credit spread risk. There are many policies in the Brazil which are introduced by the Central Bank in order to reduce the credit spread and benefiting the debtors and investors (Leal & Carvalhal-da-Silva, 2008).

Government Debt Instruments in Brazil

There are different types of the debt instruments operated by the Government of the Brazil. These instruments are called the commercial papers, debentures, asset based securities and the international bonds.

Commercial Papers and the Debentures

The private level securities in the Brazil are operated on the basis of short term loans. In this way, the commercial papers in the Brazil have been introduced in 1964. The minimum maturity of the commercial papers in the Brazil is 30 days period. For the public companies the maturity dates are considered to be 360 days in the Brazil economy. In the period of the 1995 to 2005, the outstanding amount of the commercial papers issued by the Government was increased from 13.8 billion to 84.99 billion. This was the significant increase in the outstanding amount of the commercial papers in the Brazil. In addition to this, the debentures were having the floating rates were approximately consisting of 80.4% of the total debt securities in the period of 2005.

In relation to the debentures, the floating interest rates were increased to the higher level by 42.12% in the period of 1998. Moreover, the inflation adjusted debentures comprises of 12.45% of the total debt market of the Brazil. In this regard, the total amount outstanding in the Brazil for the debentures having the fixed interest rates is considered to be 3.18 % in the period to 2005. The amount kept increasing which caused the uncertainty in the debt market of the Brazil. In 2005, the fixed rate debenture trading was standing at the 16.28 billion per year. These debenture trading volumes are lesser than as compared to the federal debt securities (Moodys.com, 2015).

Asset-based securities

The asset based securities in the Brazil are other debt instruments which are regulated by the government in the Brazil. The very first law in the Brazil was implemented in the period of 1970 which was only supporting the leasing transactions in the real estate markets. In the recent years, the financial markets of the Brazil have grown rapidly. The data on the national policy states indicates that the Brazilian banks comprised of controlling the 39% of the data in relation to the asset backed securities in the Brazil. In the period from 2011 to 2015 the amounts of the asset backed securities in the Brazil has been increased from 2.8 billion to the 7.1 billion.

There is also an expected increase in this amount in the near future. It can be analyzed that the banks have issued approximately 8% to 39% asset backed securities from 2006 to 2012. In this regard, the competition in some of the Brazil banks has increased significantly due to the securitization pressure. The merger and acquisitions in the Brazil have been heavily supported by the asset backed securities in the Brazil. Thus, the amount outstanding cannot be analyzed yet because of the securitization pressure (Ballve, 2014).

International bonds

The public companies in the Brazil can issue the international bonds. The government in the Brazil has been introducing the international bonds at the rate of the 62.9 billion annually. The proportion of the international debt in the Brazil is 75.12% and it is decreasing to the level of the 57.73% in the period from 2010 to 2015. It is analyzed that the Brazil has introduced the international bond policies which will be matured in the period of 2026. The coupon rate of the international bonds is 6% and the amount issued in these international bonds is approximately 1500 million.

It is expected that these bonds will be sold at the price level of 99.06% and the companies will be operating the significant level of international operations on the basis of the international bonds policies in the Brazil. The past analysis indicates that the percentage invested in the international debt securities was lower for the bonds having maturity period less than 1 year. According to the common practices it is analyzed that international debts are mostly for the long term policies and they are supporting the companies in the economies for getting the loans and reducing the impact of exchange rates.

In the period from 2005, it can be analyzed that the international debt having the maturity of less than one year were based on 7.38% of the total international bonds and the 5.25% of the government long term bonds. The proportion of this debt instrument is increasing in the period from 2005 onwards. It can be said that the government instruments in the Brazil comprise of the points that they are increasing the level of debt provided by the government and increasing the debt facilities for the companies. Thus, this is making the loan availability easier in the economy of Brazil (Cbonds.com, 2016).

Non-Government Debt

Non-government debt in the Brazil is based on the private level debt. The private bonds in the Brazil are not having the significant position as compared to the Government debt. The private debts are considered to be the corporate debts in the country. In this way, the outstanding issues for the corporate bonds in the Brazil have risen approximately 10% in the period of 2011. However, the duration rates in the economy are short term and ‘the investors are not enjoying the position for getting their wealth increased in the long run. In the corporate bond sector of the Brazil it is estimated that 90% of the corporate bonds are linked with the indexation rates. In this regard, the private bonds on the fixed rate basis comprises of only 1% of the total private bonds.

The research has shown that the 70% of the private bonds were purchased by the banks in the period of 2011 in the Brazil. Therefore, the liquidity in the bank is less sensitive because they are holding the private bonds in this market. In addition to this, the securitized instruments in the Brazil Debt market are growing with the significant percentage but they are not rapidly advancing with higher base. In relation to the securitized instruments, the asset backed securities in the non government bond sections are too much active.

The asset backed securities are based on the sale of real estate securities and it has become one of the most important and fast growing non government debt instrument. This is due to the reason that this instrument is based on very much low starting point and provides the higher level of the marginal funds to the investors in the debt market. Therefore, this bond is facilitating the large sector facilities in the Brazil and making reduced level of the economic pressure on the real estate market. As a result the real estate market and the securitized asset backed securities are increasing rapidly (Park, 2012).

Credit Rating Agencies in Brazil

The credit rating agencies in the Brazil are of significant importance. They are playing a major role in reducing the foreign currency credit risk in the Brazil. It can be analyzed that the credit rating agencies in the Brazil are implementing the policies in relation to mitigating the sovereign credit risks. According to the reports it has been analyzed that “A current opinion of the creditworthiness of a sovereign government, where creditworthiness encompasses likelihood of default and credit stability (and in some cases recovery)”.The credit rating agencies are implementing the policies with regards to the to solve the problems of the financial obligations which are imposed on the commercial creditors.

The recent analysis on the agencies and their policies have analyzed that they are not implementing the right level of policies in relation to mitigating the risk in the economy of Brazil. The agencies who have rated Enron have given the rating of triple A to the toxic subprime mortgage. Their rating has caused the down grads on the sovereign debt of the Brazil.

In this respect, the report of the FCIC has analyzed that “The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval (FCIC, 2011)”

            According to this statement it has been analyzed that the companies should have to be taking the credit rating agencies seriously and analyze their roles in an effective way. This issue has not yet been regarded as seriously by the companies in the economy of Brazil due to the facts that the Brazil is an external auditor which states that the debt in the economy is denominated in the foreign currency transactions. In this regard, the Brazil companies can enjoy the facility of paying all of the debts in the foreign currency values which can reduce the impact and pressure of higher level of exchanges rates.

In addition to this, it has been analyzed that the federal government of the Brazil can never become insolvent because they are having no obligation for paying debt in the consideration for their own currency values. Therefore, there is no pressure on the government of the Brazil that they should keep track of the sovereign credit rating agencies. It can be analyzed that there is no external credit risk developed in the external debt market of the Brazil. The Central Bank reports have shown that the Brazil agencies are not taking it into account for denominating the government debt in the local currency and it has become one of the beneficial policies in the country.

In this way, the foreign currency of the Brazil is denominated in the United States dollar and the country is getting benefit for having the sufficient capacity for paying the debt. Thus, the debt capacity of the country has increased and the foreign currency denominated government debt in the country is $72 billion and the international debt position in the country is stated as the $363 billion according to the reports of 2015. The graph indicates the level of debt rises in the past ten years in the Brazil.

Therefore, it is regarded that the credit rating agencies and their ratings are not imposing the high level of threat to the economy of Brazil and the country has lesser chances to go into the crisis period. However, it can be analyzed that the credit rating agencies in the Brazil are not playing an interesting role and strengthening the economic policies. It can be said that the policies of the government its self are good for protecting the country from the crisis period. If the condition in the future gets poor then it can be said that the government has the protective measures with regards to the saving the economy from the crisis period. The denominated currency in the foreign currency is playing the great role in effect.

Derivative Market of Brazil

The derivative market of the Brazil has been very popular among the world wide countries. The foreign investors have been investing in this market in order to make large amounts of money in order to get the benefit from the benchmark interest rates. The number of derivative contracts in the Brazil markets has increased and approximately 540 million contracts were signed in the period of 2015. These derivative contracts in the economy of the Brazil are based on approximately 2 trillion worth. It can be seen that the increase in the derivative contracts was 4.2% as compared to the signed derivative contracts in the period of 2011. Initially outlined in the late 1970s, the derivative market took into account items in light of Brazil’s profile as characteristic assets. Later, the criteria of the market have changed and now remote trade and futures are the main part of all derivative exchanged instruments.

In addition to this, the greatest members are institutional investors and banks, which represent just about 70 % of exchanging, as per BM&FBovespa information. As of late, the offer of remote members has risen relentlessly to achieve 25% this year, up from 16 % in 2014. Thus, the fame of Brazil’s derivative business sector can be clarified partially by its emphasis on trade exchanged items: around 90 for each penny of all agreements are exchanged and cleared through the focal counterparty BM&FBovespa itself (Rodrigues, 2014).

Recommendations for the Brazil Bond Market

After taking into account, the different kind of determinates of the bond market of the Brazil it is analyzed that the bond market should have to maintain the capital adequacy. It is recommended that the prudential rules should have to be implemented on the bond market so that the risk of biasness for the government debt should be reduced. In this regard, for maintain the capital adequacy; the government should need mange the funds in a way that they are not being biased for the regulatory treasury papers.

Moreover, the higher level of interest rate is causing the higher level of uncertainty in the market of Brazil and it should have to be reduced in relation to controlling the fluctuations in the market as well as reducing the level of pressure on the government. In this way, the interest rates should have to be reduced in the brail market so that the bond holders and issuers can gain benefit from the transactions as well as the government do not feel pressure to closely monitor the market efficiencies.

In addition to this it has been analyzed that the credibility of the central bank in relation to the inflation factors is of higher significance. This credibility has the capacity to decrease the interest rates level in the economy by providing the independence to the instrumental products and their holders. It reduces the probability of the level of uncertainty in the market and helps in improving the fiscal conditions. Therefore, the government will not be requiring the higher level of financing facilities and the effect of crowding out in relation to the credit spread will be decreased. It can be said that the uncertainty reduction will result in decreasing the credit risk and the government will have to give lesser monitoring probabilities.

Currently, the role of credit rating agencies is not much efficient in the debt market of Brazil because they are not taking the responsibilities for closely monitoring the ratings of the companies. It is recommended that the government should need to take initiatives in order to closely monitor the inefficiency of the credit rating agencies. This will result in increasing the fair ratings of the companies and the domestic as well as the international investors will not be facing the loss. Although, the Government is not facing threat and the debt market of the Brazil cannot become insolvent but it is analyzed that the investors will face higher level of risk if the credit rating agencies have not proven the right kind of responsibilities towards the debt market (Leal & Carvalhal-da-Silva, 2008).

  ‘Part B‘

Derivative Markets in Australia

Derivatives are basically the securities which are used to secure the prices of the products. The prices of the derivative products are based on the value of the underlying asset. The underlying assets can be off any type such as bonds, stocks, currencies and the interest rates and commodities. In this respect, the over the counter products in the derivative products are being extensively used in the worldwide market in order to reduce the risk of loss. The overt the counter products are the bilateral arrangements and these are not based on a formal exchange.

In addition to this, the exchange traded derivatives are based on the standardized derivative contracts which are named as the option and the future contracts. These contracts are traded on the formal exchange transactions. These exchange traded derivatives in the countries have their own characteristics and consist of the standardized products. These derivatives consist of having an initial deposit amount and the margins of these settled according to the instructions of a clearing house.

Over the counter products in the market of the Australia are smaller as compared to the global use of the derivative markets. In this regard, over the counter market in the Australia is dependent upon the larger amounts of the cross boarder arrangements. The reports of the CFR on the derivative market states that the financial institutions in the Australia are using the higher level of over the counter derivatives in the Australia. In this regard, it can be analyzed that approximately 60% of the derivative market of Australia is based on the domestic over the counter swaps and 40% is based on the cross-border activities.

Over the counter market in the Australia is based on lesser number of currencies and most of the global contracts in the Australia for the over the counter products are denominated in the US dollars, Japanese yen and the Euros. This activity reflects the larger size of the markets to be grasped by the over the counter product of Australia (Rba.gov.au, 2014).

The exchange trade derivative in the Australia was launched in the 2001 and it was closed after making the breach of the financial covenants. In this regard, the country started to gain access to a United Kingdom based exchange derivative program which helps in securing the investments of the investors. In this way, the trade exchanged derivatives in the Australian debt economy are depending on the institutionalized subsidiary contracts which are named as the choice and the future contracts.

These agreements are exchanged on the formal trade exchanges. These trade exchanged derivatives in the nations have their own particular qualities and comprise of the institutionalized items. These derivatives comprise of having an underlying store sum and the edges of these settled by guidelines of a clearing house.

Currently, the Australian economy is set as the preference economy which in which the currencies are traded for the exchange. But the trends have shown that the dissertation of the exchange trade derivative has increased over the period from 2004 and the market is not able to adapt the successful policies in providing derivatives to the investors. In this regards, the largest level of turnover with approximately 62% of the turnover in the period of 2007 has been seen in the Australia for the exchange-trade derivatives. It is expected that this will result in increasing the higher level of the hedging activities implemented by the non-financial companies.

Thus, the companies in the Australia are finding it as an opportunity to reduce the risk by locking up the interest rates prices by the future and options contracts. In the recent period, the Australian economy has attracted a wide range of foreign companies who are making changes to the exchange trade derivatives. In this respect, the electronic trading is providing the companies with an ease of making the exchange and get the funds managed by the banks of the Australia. thus, the exchange trade derivatives in the debt market of the Australia is expanding significantly and the foreign investors are getting benefit from the lower prices for hedging their interest rates with the banks of Australia(Rba.gov.au, 2010).

Derivative Market in the United Kingdom

The daily turnover in the over the counter derivative market in the United Kingdom is recorded as $171 billion in the period of 2013. This was approximately 131% increase in the turnover recorded in the previous year. In this regard, the higher level of over the counter product in the United Kingdom has shown that the OTC derivative market in the United Kingdom is growing rapidly. However, it can be analyzed that the interest rate market in the United Kingdom is still larger than the OTC market for the interest rates. The currencies in the interest rates market are growing rapidly and they are making higher level of changes in the OTC product market.

In the recent years it has been analyzed that the OTC market has adapted 56% of the business in the country. The OTC market in the United Kingdom has been enjoying the higher level of the success position in the market and it has been increasing significantly. It is expected that it will continue to grow in the future as in the previous years. Thus, the investors will be able to gain the significant benefits by investing in the OTC derivatives of this market. Therefore, it is analyzed that this market will bring higher level of advantages for the investors and increase the positive returns by securing their level of investments.

In addition to this, the exchange trading derivative market in the United Kingdom is not increasingly rapidly as it was in the past. In this respect, the average daily turnover in this market is expected to be $637 billion. The higher level of the turnover in this market indicates that the country is taking right actions in order to increase the support for the foreign exchange investors. It is analyzed that the foreign exchange derivative markets in the United Kingdom is based on the operations of the foreign companies which are operating in the United Kingdom. They are covering approximately 85% of the turnover of the overall exchange trade derivative market.

However, the higher level of merger and acquisitions in this economy has contributed to change the external marketing conditions with regards to the exchange rate derivatives. In this respect, the value of the exchange trade derivatives has decreased in the current years. This is due to the reason that the companies making merger and acquisitions with the international countries are not incorporating the right level of the strategies which can help in increasing the value of exchanges trade derivatives.

Most of the companies having international subsidiaries are making transactions with their subsidiaries which they are not reporting on the exchange trade data. In this respect, the exchange trade data is not reporting the fair rates and they local exchange in the economy are unable to obtain the right data values and operating in a good business environment. These hidden transactions of the companies are mot providing the investors with the real information. Thus, the value of the exchange trade derivatives have decreased and thus the attraction of the exchange market of the United Kingdom.

The current reports of the exchange trade derivative have shown that the value of the exchange trade derivatives will kept declining in the future because of the facts that the higher level of merger and acquisitions has been taken place in the economy. In relation to the future concern it can be said that the effectiveness of the exchange trade derivative market in the United Kingdom is not beneficial. So, the companies should not be considering taking the exchange trade derivatives as the good derivative financial product.

They should not be making the exchange trade derivative as the future financial concerns. Therefore, the market of the United Kingdom for the exchange trade derivative is not beneficial and the exchange trade data is not reporting the fair rates and they local exchange in the economy are unable to obtain the right data values and operating in a good business environment.

Comparison of the derivative market of the Australia and the United Kingdom

The above discussion on the interest rates derivatives in relation to the over the counter products and the exchange rate derivative can be said as an important factor of the research. It is analyzed that the derivative for the over the counter products in the United Kingdom is much beneficial for the investors. This is due to the reason that the OTC derivative products in the United Kingdom are showing the higher level of the turnover as compared to the ORC market of the Australia. In this respect, the OTC products in the United Kingdom are more attractive and beneficial for the investors.

The daily turnover in the over the counter derivative market in the United Kingdom is recorded as $171 billion in the period of 2013. This was approximately 131% increase in the turnover recoded in the previous year. This market in the United Kingdom is growing in a faster way. Thus it will help in securing the investments of the investors from the higher level of risk. On the other hand, it can be seen that OTC derivative market of the Australia is also growing rapidly but the increase in this market is not relevant as compared to OTC derivative market of the United Kingdom.

In contrast with the OTC derivative market of the United Kingdom which can be converted into many different kinds of the currencies, the OTC derivatives of the Australia can be converted into lesser currencies. Australia is dependent upon the larger amounts of the cross boarder arrangements. The reports of the CFR on the derivative market states that the financial institutions in the Australia are using the higher level of over the counter derivatives in the Australia. In the Australia for the over the counter products are denominated in the US dollars, Japanese yen and the Euros only. Thus, it cannot be considered as a good decision for the investors to take the help from the OTC derivatives of the Australia.

The investors who are taking the decision in investing in the debt market of Australia have either denominated currency in the Australian dollar or either their exchange rates are not relevant to the UK pound sterling. Only in this case, the OTC derivative products in the Australia would be an attraction for the investors. Therefore, it cannot be said that the investors would be getting the significant benefit from the OTC interest rates derivatives. It is recommended that if the investors have to make compression among the Australia and UK OTC product derivatives then they should have to select the OTC market of the United Kingdom and use the UK pound sterling as the denominator. This strategy will be giving them benefit and the chances of loss will be reduced.

Moreover, the long discussion on the exchange trade derivatives has also been made on both markets and their opportunities. In this regard, if the comparison is made among the both markets than it would suggest that the exchange trade derivatives of Australia are better opportunity to be taken as compared to the exchange trade derivatives of the United kingdom. There are two reasons for this. Firstly it can be said that the derivative market for the Australia cannot become insolvent because of the denominated currency for the Australia is not Australia itself. The prices of the Australian products are locked with the prices of the United States dollar.

In this way, if any currency which is not allowed to trade with the United States dollar then the exchange rates derivatives for option pricing can be used. This will help increasing the wealth of the investors because in the option pricing of interest rates there is no chance of loss. This would result in increasing the benefit to the investors only. In addition, if the market prices of the Australian denominated products have decreased then the investors will have the opportunity to not exercise the option. This exchange rate derivative of Australia is suggested because of the facts that this market is increasing rapidly in the Australia as compare to the declining position of the United Kingdom exchange trade derivatives.

It is analyzed that the foreign exchange derivative markets in the United Kingdom is based on the operations of the foreign companies which are operating in the United Kingdom. They are covering approximately 85% of the turnover of the overall exchange trade derivative market. This cannot be suggested as an effective policy to invest in the exchange traded market of the United Kingdom because there are lesser chances of getting benefit through this transaction as compared to the exchange traded derivatives of the Australia.

Thus, the comparison and analysis indicates that the agencies and the investors should not be using the exchange trade derivatives of the United Kingdom because there will be lesser benefit to those companies in relation to the points that if they have spent their money in the Australian market of the exchange trade derivatives. In this regard, the investors can use the strategies of the making portfolio and getting benefit in the exchange trade derivatives. Therefore, if there is an expected loss in the exchange trade derivative for an investor due to the market conditions, then the investors can make portfolio and take the benefit of countering the loss of one investment with other investment.

Moreover, the exchange trade derivatives in the economy of the Australia are also locked up with the United States Dollar contracts. This will help in making the future contracts more flexible because of the facts that the changes in the United States Dollars will also make changes in the base interest rate of the Australian dollar. Thus, the positive impacts of the exchange trade derivatives would be analyzed by the facts that the U.S dollars is flexible and does not incorporate higher level of changes in the economy. On the other hand, the exchange trade derivatives of the United Kingdom are at the significant risk and having lesser potential for benefit.

The past trend has shown that the merger and acquisitions in the economy of the United Kingdom have been significant and they have not provided the right ad fair kind of exchange trade derivatives in the United Kingdom. The market of the United Kingdom for the exchange trade derivative is not beneficial and the exchange trade data is not reporting the fair rates and they local exchange in the economy are unable to obtain the right data values and operating in a good business environment. Thus, it is suggested that the companies and the investors should have to be considering the exchange trade derivatives as the most beneficial products with regards to making portfolio of the Australia. This will be an effective policy and the investors will be taking of the benefits of the exchange trade derivatives.

Conclusion

The report has made an extended research in relation to analyzing the effect of the bond markets in the different countries. In this respect, the bond market of the Brazil has been discussed in detail. The participation of the foreign investors in the economy has increased and the debt market of the Brazil has started to increase. It is analyzed that the private investors in this economy prefer the short term variable rate debts because of the facts that the longer debt period due to the exchange rates policies are not beneficial for them.

In relation to the debentures, the floating interest rates were increased to the higher level by 42.12% in the period of 1998. Moreover, the inflation adjusted debentures comprises of 12.45% of the total debt market of the Brazil. The very first law in the Brazil was implemented in the period of 1970 which was only supporting the leasing transactions in the real estate markets. The proportion of the international debt in the Brazil is 75.12% and it is decreasing to the level of the 57.73% in the period from 2010 to 2015. It is analyzed that the Brazil has introduced the international bond policies which will be matured in the period of 2026.

Currently, the role of credit rating agencies is not much efficient in the debt market of Brazil because they are not taking the responsibilities for closely monitoring the ratings of the companies. It is analyzed that the government has taken the actions for the regulating the fiscal needs and making the regulations to be effective in the country. These fiscal needs are implementing the pressure on the external economy and private debt levels.

Moreover, the role of debt market and the derivatives in the country of the Australia and the United Kingdom has also been analyzed and the comparison has been made among the OTC and exchange trade derivatives of both economies. Over the counter products in the market of the Australia are smaller as compared to the global use of the derivative markets. It can be analyzed that the interest rate market in the United Kingdom is still larger than the OTC market for the interest rates. The currencies in the interest rates market are growing rapidly and they are making higher level of changes in the OTC product market.

Currently, the Australian economy is set as the preference economy which in which the currencies are traded for the exchange. But the trends have shown that the dissertation of the exchange trade derivative has increased over the period from 2004 and the market is not able to adapt the successful policies in providing derivatives to the investors. On the other hand in the Australian market, the current reports of the exchange trade derivative have shown that the value of the exchange trade derivatives will kept declining in the future because of the facts that the higher level of merger and acquisitions has been taken place in the economy. The comparison has shown that the investors should use the OTC products of the United Kingdom and Exchange change trade derivative interest of the Australia.

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