Legal Framework

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.… Read the rest

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with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information.… Read the rest

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.… Read the rest

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.… Read the rest

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).… Read the rest

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.… Read the rest