Context: The Union government has filed a draft red herring prospectus with the SEBI for selling 5% of its shares in the Life Insurance Corporation (LIC) of India.
Key takeaways
A Draft Red Herring Prospectus (DRHP) is a document that is prepared to introduce a new business or product to a potential investor.
This is not a final document for an investor.
It is a way of demonstrating value and providing investors with enough information for them to decide whether they want to invest in the company or not.
SEBI is required to assess the facts stated in the DRHP and recommend changes if required, before giving the share sale a green signal.
The Securities and Exchange Board of India (SEBI)
It is the regulator of the securities and commodity market in India owned by the Government of India.
It was established in 1988 and given statutory status through the SEBI Act, 1992.
SEBI is responsible to the needs of three groups:
Issuers of securities
Investors
Market intermediaries
Functions:
Quasi-legislative – drafts regulations
Quasi-judicial – passes rulings and orders
Quasi-executive – conducts investigation and enforcement action
Powers:
To approve by−laws of Securities exchanges.
To require the Securities exchange to amend their by−laws.
Inspect the books of accounts and call for periodical returns from recognised Securities exchanges.
Inspect the books of accounts of financial intermediaries.
Compel certain companies to list their shares in one or more Securities exchanges.
