SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 enable SEBI to investigate into cases of market manipulation and fraudulent and unfair trade practices. The regulations specifically prohibit market manipulation, misleading statements to induce sale or purchase of securities, unfair trade practices relating to securities. SEBI can conduct investigation, suo moto or upon information received by it, by an investigating officer in respect of conduct and affairs of any person dealing, buying/selling/dealing in securities. Based on the report of the investigating officer, SEBI can initiate action for suspension or cancellation of registration of an intermediary.

The term “fraud” has been defined by Regulation 2(1)(c). Fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person or his agent while dealing in securities in order to induce another person with his connivance or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include –

1. a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment;

2. the suggestion as to a fact which is not true by one who does not believe it to be true;

3. an active concealment of a fact by one having knowledge or belief of the fact;

4. a promise made without any intention of performing it;

5. a representation made in a reckless and careless manner whether it be true or false;

6.… Read the rest

SEBI(Prohibition of Insider Trading) Regulations, 1992

Insider trading is prohibited and is considered an offence vide SEBI (Insider Trading) Regulations, 1992.

The definitions of some of the important terms are given below :

‘Dealing in securities’ means an act of subscribing, buying, selling or agreeing to subscribe, buy, sell or deal in any securities by any person either as principal or agent.

‘Insider’ means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information.

A “connected person” means any person who-

(i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act, or

(ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company whether temporary or permanent and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company.

A person is ‘deemed to be a connected person’ if such person-

(i) is a company under the same management or group or any subsidiary company thereof within the meaning of section (1B) of section 370, or sub-section (11) of section 372, of the Companies Act, 1956 or subclause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 as the case may be; or

(ii) is an intermediary as specified in section 12 of SEBI Act, 1992, Investment company, Trustee Company, Asset Management Company or an employee or director thereof or an official of a stock exchange or of clearing house or corporation;

(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio manager, Investment Advisor, sub-broker, Investment Company or an employee thereof, or, is a member of the Board of Trustees of a mutual fund or a member of the Board of Directors of the Asset Management Company of a mutual fund or is an employee thereof who have a fiduciary relationship with the company;

(iv) is a member of the Board of Directors, or an employee, of a public financial institution as defined in Section 4A of the Companies Act, 1956;

(v) is an official or an employee of a self regulatory organisation recognised or authorised by the Board of a regulatory body;

(vi) is a relative of any of the aforementioned persons;

(vii) is a banker of the company.… Read the rest

SEBI (Stock brokers & Sub-brokers) Regulations, 1992

In terms of regulation 2(g), ‘small investor’ means any investor buying or selling securities on a cash transaction for a market value not exceeding rupees fifty thousand in aggregate on any day as shown in a contract note issued by the stock-broker.

Registration of Stock Broker

A stock broker applies in the prescribed format for grant of a certificate through the stock exchange or stock exchanges, as the case may be, of which he is admitted as a member (Regulation 3). The stock exchange forwards the application form to SEBI as early as possible as but not later than thirty days from the date of its receipt.

SEBI takes into account for considering the grant of a certificate all matters relating to buying, selling, or dealing in securities and in particular the following, namely, whether the stock broker:

(a) is eligible to be admitted as a member of a stock exchange,

(b) has the necessary infrastructure like adequate office space, equipment and man power to effectively discharge his activities,

(c) has any past experience in the business of buying, selling or dealing in securities,

(d) is subjected to disciplinary proceedings under the rules, regulations and bye-laws of a stock exchange with respect to his business as a stockbroker involving either himself or any of his partners, directors or employees, and

(e) is a fit and proper person. SEBI on being satisfied that the stock-broker is eligible, grants a certificate to the stock-broker and sends intimation to that effect to the stock exchange or stock exchanges, as the case may be.… Read the rest

Securites and Exchange Board of India Act, 1992

Major part of the liberalisation process was the repeal of the Capital Issues (Control) Act, 1947, in May 1992. With this, Government’s control over issues of capital, pricing of the issues, fixing of premia and rates of interest on debentures etc. ceased, and the office which administered the Act was abolished: the market was allowed to allocate resources to competing uses.

However, to ensure effective regulation of the market, Securites and Exchange Board of India Act, 1992 was enacted to establish SEBI with statutory powers for:

(a) protecting the interests of investors in securities,

(b) promoting the development of the securities market, and

(c) regulating the securities market.

Its regulatory jurisdiction extends over companies listed on Stock Exchanges and companies intending to get their securities listed on any recognized stock exchange in the issuance of securities and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI can specify the matters to be disclosed and the standards of disclosure required for the protection of investors in respect of issues; can issue directions to all intermediaries and other persons associated with the securities market in the interest of investors or of orderly development of the securities market; and can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. In short, it has been given necessary autonomy and authority to regulate and develop an orderly securities market. All the intermediaries and persons associated with securities market, viz., brokers and sub-brokers, underwriters, merchant bankers, bankers to the issue, share transfer agents and registrars to the issue, depositories, Participants, portfolio managers, debentures trustees, foreign institutional investors, custodians, venture capital funds, mutual funds, collective investments schemes, credit rating agencies, etc., shall be registered with SEBI and shall be governed by the SEBI Regulations pertaining to respective market intermediary.… Read the rest

Securities Contracts (Regulation) Rules, 1957

The Central Government has made Securities Contracts (Regulation) Rules, 1957, in the exercise of the powers conferred by section 30 of SC(R) Act., 1956 for carrying out the purposes of that Act. The powers under the SC(R)R, 1957 are exercisable by SEBI.

Contracts between members of recognised stock exchange

All contracts between the members of a recognised stock exchange shall be confirmed in writing and shall be enforced in accordance with the rules and bye-laws of the stock exchange of which they are members (Rule 9).

Books of account and other documents to be maintained and preserved by every member of a recognised stock exchange :

(1) Every member of a recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years:

(a) Register of transactions (Sauda book).

(b) Clients’ ledger.

(c) General ledger.

(d) Journals.

(e) Cash book.

(f) Bank pass-book.

(g) Documents register showing full particulars of shares and securities received and delivered.

(2) Every member of a recognised stock exchange shall maintain and preserve the following documents for a period of two years:

(a) Member’s contract books showing details of all contracts entered into by him with other members of the same exchange or counter-foils or duplicates of memos of confirmation issued to such other members.

(b) Counter-foils or duplicates of contract notes issued to clients.

(c) Written consent of clients in respect of contracts entered into as principals. (Rule 15)… Read the rest

Securities Contracts (Regulation) Act, 1956

SECURITIES CONTRACTS (REGULATION) ACT, 1956

The Securities Contracts (Regulation) Act, 1956 [SC(R)A] was enacted to prevent undesirable transactions in securities by regulating the business of dealing therein and by providing for certain other matters connected therewith. This is the principal Act, which governs the trading of securities in India.

The definitions of some of the important terms are given below:

‘Recognised Stock Exchange’ means a stock exchange, which is for the time being recognised by the Central Government under Section 4 of the SC(R)A.

‘Stock Exchange’ means –

(a) any body of individuals, whether incorporated or not, constituted before corporatisation and demutualization under sections 4A and 4B, or

(b) a body corporate incorporated under the Companies Act, 1956 (1 of 1956) whether under a scheme of corporatisation and demutualization or otherwise, for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.

As per Section 2(h), the term “securities” include-

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate,

(ii) derivative,

(iii) units or any other instrument issued by any collective investment scheme to the investors in such schemes,

(iv) Security receipts as defined in clause (zg) of section 2 of the Securisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI)

(v) units or any other such instrument issued to the investors under any mutual fund scheme,

(vi) any certificate or instrument issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case maybe.… Read the rest