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


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

Terms commonly used with reference to capital market

There are several terms which are commonly used with reference to capital market. Several such terms have already been discussed in the previous articles. Understanding of following terms (given in alphabetical order) will help the readers in better grasping the structure and trading system in the capital market in India :

Arbitrage: Arbitrage refers to taking advantage of price differential in a particular security on to different stock exchanges. An investor/speculator can sell at one stock exchange and buy the same at lower price at other stock exchange. The difference in prices is the profit of the investor/speculator.

Categories of Shares at BSE: At the Mumbai Stock Exchange, the shares have been categorised in different categories  such as A, B1, B2, S, T, TS and Z. Categories A , B1 and B2 depend upon the volume and turnover of different shares on the BSE. S group is called BSE Indonext, which provide a nationwide trading platform for the small and medium enterprises already listed with the BSE and regional stock exchanges. As required by SEBI, category T, referring to Trade to Trade, shares are those of which the transactions must result in the delivery. In other words, the squirring off of the transaction is not allowed. An investor buying or selling a T-group share must effect a delivery. It cannot be settled by a counter transaction. TS group is trade to trade segment of BSE Indonext. Z group refers to the companies which have failed to comply with the listing requirements and/or have failed to resolving investors complaints.… Read the rest

Margin trading at stock exchanges

Margin Trading (MT) is an arrangement whereby an investor purchases securities by borrowing a portion of the purchase value from the authorised broker by using securities in his portfolio as collateral. Since April 1, 2004, SEBI has allowed member brokers to provide margin trading facility to their client in the cash market. Only corporate brokers with net worth of at least Rs. 3 crores would be eligible to participate in Mragin Trading. The brokers interested to provide margin trading facility to their clients have to seek approval from the stock exchange. The broker may use his own funds or borrow from scheduled commercial banks/NBFC regulated by the RBI. The total exposure of a broker shall be within self imposed prudential limits and not exceeding 50% of networth.

The margin arrangement has to be agreed upon between the broker and the client, subject to SEBI Guidelines, 2004. Initial and maintenance margin for the client shall be a minimum of 50% and 40% respectively, to be paid in cash. A broker may liquidate the securities (kept as collateral) if the client fails to deposit the additional margin in the following cases :

  • If the client fails to meet the margin call.
  • If the client fails to deposit the cheque after the margin call has been made.
  • If the cheque deposited by the client has been dishonoured.

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