Legal Framework

Financial Market Regulation in India (Guidelines Issued by RBI and SEBI)

Guidelines Issued by Reserve Bank of India for the Regulation of Financial Markets

1) Management oversight, policy/operational guidelines – The management of a Primary Dealer should bear primary responsibility for ensuring maintenance of appropriate standards of conduct and adherence to proper procedures by the entity. Primary Dealers (PD) should frame and implement suitable policy guidelines on securities transactions. Operational procedures and controls in relation to the day-to-day business operations should also be worked out and put in place to ensure that operations in securities are conducted in accordance with sound and acceptable business practices. With the approval of respective Boards, the PDs should clearly lay down the broad objectives to be followed while undertaking transactions in securities on their own account and on behalf of clients, clearly define the authority to put through deals, procedure to be followed while putting through deals, and adhere to prudential exposure limits, policy regarding dealings with brokers, systems for management of various risks, guidelines for valuation of the portfolio and the reporting systems etc.… Read the rest

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Financial Market Regulation: Meaning and Objectives

Financial Market Regulation

The nature of securities markets is such that they are inherently susceptible to failures due to the existence of information asymmetries and existence of high transaction costs. It needs to be emphasized that when securities markets come into existence, the interest of the member brokers are taken care of through margin requirements, barriers to entry of membership, listing agreements. However the investors/clients who buy and sell via their brokers are not able to form an organization to safeguard their interests due to the cost of creation of such organizations and free rider problems. The distinctive nature of the market can be observed with reference to the commodity, its quality, the system of transactions and the participants in the market, as follows:

(a) the commodity(the security)has a life to perpetuity.… Read the rest

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Summary of important sections of Banking Regulation Act

The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66. Summary of some important sections is provided hereunder.(Note:   The section no. is given at the end of each item. For details, kindly refer the bare Act.)

  • Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand or otherwise and withdrawable by cheque, drafts order or otherwise (5 (i) (b)).
  • Banking company means any company which transacts the business of banking (5(i)(c)
  • Transact banking business in India (5 (i) (e).
… Read the rest
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Steps implemented by Companies Act with regard to Corporate Governance

The Ministry of Company Affairs appointed various committees on the subject of corporate governance which lead to the amendment of the companies Act in 2000.   These amendments aimed at increasing transparency and accountabilities of the Board of Directors in the management of the company, thereby ensuring good corporate governance.   The dealt with the following:

1. COMPLIANCE WITH ACCOUNTING STANDARDS — SECTION 210A

As per this subsection inserted by the Companies Act, every profit and loss account and balance sheet of the company shall comply with the accounting standards.   The compliance of Indian Accounting standards was made mandatory and the provisions for setting up of National Committee on accounting standards were incorporated in the Act.… Read the rest

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Corporate Governance and Clause 49 of the Listing Agreement

SEBI revise Clause 49 of the Listing Agreement pertaining to corporate governance vide circular date October 29th, 2004, which superseded all other earlier circulars issued by SEBI on this subject.   All existing listed companies were required to comply with the provisions of the new clause by 31st December 2005.

The major provisions included in the new Clause 49 are:

  • The board will lay down a code of conduct for all board members and senior management of the company to compulsorily follow.
  • The CEO an CFO will certify the financial statements and cash flow statements of the company.
  • If while preparing financial statements, the company follows a treatment that is different from that prescribed in the accounting standards, it must disclose this in the financial statements, and the management should also provide an explanation for doing so in the corporate governance report of the annual report.
… Read the rest
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Laws governing merger in India

Various Laws governing merger in India are as follows:

1. Indian Companies Act, 1956

This has provisions specifically dealing with the amalgamation of a company or certain other entities with similar status. The most common form of merger involves as elaborate but time-bound procedure under sections 391 to 396 of the Act.

Powers in respect of these matters were with High Court (usually called Company Court). These powers are being transferred to National Company Law Tribunal (NCLT) by companies (second Amendment) Act, 2002.

The Compromise, arrangement and Amalgamation/reconstruction require approval of NCLT while the sale of shares to Transferee Company does not require approval of NCLT.… Read the rest

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