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Definition Of Securities

Under Securities Contract


Regulation Act 1956

Securities
A security is afinancial instrumentthat represents
an ownership position in apublicly-traded
corporation(stock), a creditor relationship with
governmental body or a corporation (bond), or rights
to ownership as represented by anoption. A security
is afungible, negotiable financial instrument that
represents some type of financial value. The
company or entity that issues the security is known
as the issuer.

Introduction
The securities contracts(regulation)Act ,
1956 is an Act to present undesirable in
securities by regulating the business of
dealing therein by providing for certain
other matters connected therewith.
It was enacted by parliament in the
seventh year of the Republic of
India(1956) & extends to the whole of
India .

Objective
Stock Exchange in India are regulated and controlled
by the securities contracts (Regulation) Act , 1956
(Act No.42 of 1956). The objects clause describes
the Act as
An Act to prevent undesirable transactions in
securities by regulating the business of dealing
therein, by providing for certain other matters
connected therewith.

Contents Of The Act


Preliminary
Recognized, Supervision & Control of Stock
Exchanges
Regulation of contracts in securities
Listing of securities of Public companies
Penalties and procedures
Miscellaneous

Definition of Stock
Exchange
Stock Exchange means any body of individuals,
whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the
business of buying, selling or dealing in securities.

Important Terms Under


Securities Act
In this act,
Contract
Derivative
Government security
Member
Prescribed
Recognized stock exchange
Rules
Securities appellate tribunal
Securities
Stock exchange

What it deals with ?

The [SC(R)A]- Securities contracts


(Regulation) Act deals with :
Stock exchanges ,through a process of
recognition & continued supervision.
Contracts in securities
Listing of securities on stock exchanges.

Application for Recognition of


Stock Exchange (Sec-3)
Any Stock exchange, which is desirous of being
recognized for the purposes of this act may make
an application in the prescribed manner to the
Central Government.

Grant of Recognition to Stock


Exchanges (Sec-4)
1. If the Central Government is satisfied, after
making such inquiry as may be necessary in this
behalf and after obtaining such to further
information, if any, as it may require(a) that the rules and bye-laws of a stock exchange
applying for registration are in conformity with such
conditions as may be prescribed with a view to
ensure fair dealing and to protect investors;

(b) that the stock exchange is willing to comply with


any other conditions (including conditions as to the
number of members) which the Central Government,
after consultation with the governing body of the
stock exchange and having regard to the area served
by the stock exchange and its standing and the
nature of the securities dealt with by its, may impose
for the purpose of carrying out the objects of this Act;
and

(c) that it would be in the interest of the trade and


also in the public interest to grant recognition to the
stock exchange;
it may grant recognition to the stock exchange
subject to the conditions imposed upon it as
aforesaid and in such form as may be prescribed.

(2) The conditions which the Central Government


may prescribe under clause (a) of sub-section (1)
for the grant of recognition to the stock exchanges
may include, among other matters, conditions
relating to
(i) the qualifications for membership of stock
exchanges;
(ii) the manner in which contracts shall be entered
into and enforced as between members;

(iii) the representation of the Central Government on


each of the stock exchanges by such number of
persons not exceeding three as the Central
Government may nominate in this behalf; and
(iv) the maintenance of accounts of members and
their audit by Chartered accountants wherever such
audit is required by the Central Government.

(3) Every grant of recognition to a stock exchange


under this section shall be published in the Gazette
of India and also in the Official Gazette of the State
in which the principal office of the stock exchange is
situate, and such recognition shall have effect as
from the date of its publication in the Gazette of
India.
(4) No application for the grant of recognition shall
be refused except after giving an opportunity to the
stock exchange concerned to be heard in the
matter; and the reasons for such refusal shall be
communicated to the stock exchange in writing.

(5) No rules of a recognized stock exchange relating


to any of the matters specified in sub-section (2) of
section 3 shall be amended except with the approval
of the Central Government.

Corporatisation & Demutualisation


of Stock Exchange (Sec-4A)
On and from the appointed date, all recognised
stock exchanges (if not corporatised and
demutualised before the appointed date) shall be
corporatised and demutualised in accordance with
the provisions contained in section 4B.

Procedure for corporatisation and


demutualisation (Section 4B)
4B(1): All recognised stock exchanges referred to in
section 4A shall, within such time as may be specified
by the SEBI, submit a scheme for corporatisation and
demutualisation for its approval
4B(2): On receipt of the scheme, the SEBI after
making such enquiry as may be necessary and if it is
satisfied that it may approve the scheme with or
without modification.

Power of Central Government to


call for periodical returns or direct
inquiries to be made (Sec 6)
Every recognised stock exchange shall furnish to
SEBI periodical returns relating to its affairs as may
be prescribed. Every recognised stock exchange and
every member thereof shall preserve such books of
accounts and other documents for period of not
exceeding five years.

Annual reports to be furnished to Central


Government by stock exchanges (Sec 7)

Every recognised stock exchange shall furnish the


Central Government a copy of the annual report.

Power of recognised stock exchanges to make


bye-laws (Sec 9)

Any recognised stock exchange may, subject


to the previous approval of the SEBI, make
bye-laws for the regulation and control of
contracts.

Power of SEBI to make or amend bye-laws


of recognised stock exchanges (Sec 10)

The SEBI may either on a request from the


governing body of a recognised stock exchange or
on its own motion make bye-laws for all or any of
the matters specified in section 9 or amend any byelaws made by such stock exchange under that
section.

Power to suspend business of recognised


stock exchanges (Sec 12)

The Central Government is empowered to suspend the


business of recognised stock exchange on an emergency
situation by giving notification in the Official Gazette stating
the reasons therein, for a period of not exceeding seven days
and subject to such conditions as may be specified in the
notification. However, in the interest of the trade or the public
the said period can be extended from time to
time,providedthat no such period of suspension can be
extended, unless the governing body of the recognised stock
exchange has been given an opportunity of being heard in the
matter

Listing of SECURITIES
Sec 21- Conditions for Listing.
Sec 21 A - Delisting of Securities.
Sec 22 - Right of appeal against refusal of stock
exchanges to list securities of public companies.
Sec 22 A- Right of appeal to Securities Appellate
Tribunal against refusal of stock exchange to list
securities of public companies.

Sec 22 B Procedure and Power of Securities


Appellate Tribunal.
Sec 22 C Right to legal representation.
Sec 22 D Limitations.
Sec 22 E Civil court not to have jurisdiction.
Sec 22 F Appeal to Supreme Court.

WHY DID IT CAME INTO


EXISTENCE ?
Stock market plays a significant role in
development of the economy.
Stock market facilitates mobilization of
funds from small savings of investors &
channelizes these resources into various
development needs of various sectors of
the economy.
Stock market also provides mechanism for
trading of securities thus ensuring liquidity
to the investment of investors.

Thus stock market facilitates transactions in


securities
In order to prevent undesirable transactions
in securities, promote healthy stock market,
the securities contracts(Regulation) Act
1956 enacted by parliament with Act no 42
The Act applies to the whole India

Indian Regulatory Framework


SECURITIES ISSUANCE: REGULATORY FRAMEWORK
DEPOSITORI
ES ACT

SCR ACT

SEBI ACT

COMPANIES
ACT

SEBI Rules,
guidelines
Stock
exchanges
Intermediari
es

ISSUER

Amendments in Securities
Contracts (Regulation) Act, 1956
1. Sec 12A:- Powers of SEBI to issue directions
.

to any stock exchange or

. to any person or
. company whose shares are listed or
. are to be listed.

Explanation:- Power to issue directions includes &


always deemed to have been included the power.
To direct any person
Who made profit or averted loss
By indulging in any transaction or activity in
contravention of this act
To disgorge an amount equivalent to
The wrongful gain made or loss averted by such
contraction.

Amendments in Penalties
Section

Earlier

After
Amendment

Sec 23A
Failure to furnish
information etc

Rs 1 lakhs for each


day during which
failure continues
OR
Rs 1 Crores
whichever is less

Min:- Rs 1 lakh may


extend to Rs 1 lakh
for each day

Same as Sec 23A

Same as Sec 23A

Failure to maintain
Books of Accounts
or records
Sec 23B
Failure to enter
into agreements
with clients

Max:- Rs 1 crores

Section

Earlier

After
Amendment

Sec 23C

Same as Sec 23A

Same as Sec 23A

Failure to redress
investors grievances

Sec 23D
Failure to segregate
securities or
moneys of client or
using securities or
moneys of client for
self or for other
client

Sec 23E
Failure to comply
with listing
conditions or
delisting conditions
or grounds

Liable to penalty not Min:- Rs 1 lakh


exceeding Rs 1
Max:- Rs 1 crore
crore

Penalty not
exceeding Rs 25
crores

Minimum Rs 5 lakhs
Maximum Rs 25
crores

Section

Earlier

After
Amendment

Sec 23F

Same as Sec 23E

Same as Sec 23 E

Same as Sec 23E

Same as Sec 23E

Penalty which may


extend to Rs 1
crores

Min Rs 1 lakh
Max Rs 1 crores

Excess
dematerialization or
delivery of unlisted
securities.

Sec 23G
Failure to furnish
Periodical returns etc

Sec 23H
Any contravention
for which no
separate penalty has
been provided
elsewhere

Sec 23i Power of SEBI to


adjudicate
For the purpose of adjudging under sections 23A, 23B,
23C, 23D, 23E, 23F, 23G and 23H, the Securities and
Exchange Board of India shall appoint any officer not
below the rank of a Division Chief of the Securities and
Exchange Board of India to be an adjudicating officer
for holding an inquiry in the prescribed manner after
giving any person concerned a reasonable opportunity
of being heard for the purpose of imposing any
penalty.

Sec 23JA:- Settlement of administration and civil


proceedings
Any person against whom
Any proceedings have been initiated or
May be initiated under sec 12A or 23I
May file an application in writing to SEBI
For settlement of proceeding initiated or to be
initiated for alleged defaults
The nature, gratuity & impact of defaults to be seen
for the purpose of settlement

Sec 23JB Recovery of


amounts
Any amount of penalty or any fees due from a person may be
recovered from such person by one or more of the following
modes.
a) Attachment & sale of persons movable property
b) Attachment & sale of persons immovable property
c) Attachment of persons bank accounts
d) Arrest of persons & his detention in prison
e) Appointing receiver for management of persons movable
and immovable property.

Sec 26A:- Establishment of special court


Central Government Purpose Speedy trial of offences by
NOTIFICATION.
Special Court:- Consist of single judge appointed by Central
Government with concurrence of chief justice of high court
Sec 26B:- Offences triable by special courts. All offences
under this act shall be tried by special court
Sec 26C:- Appeal and Revision

Sec 26D Application of code of proceedings before


special court
The provisions of code of criminal procedure 1973
shall apply to proceedings before a special court &
for this purpose special court shall be deemed to be
court of session & person conducting prosecution
shall be public prosecutor.
Prosecutor shall have been in practice as an
advocate for not less than 7 years.

Sec 26E
Until special court is established any offence
committed under this act shall be taken cognizance & tried by
court of session exercising jurisdiction over the area.

Sec 32:- Validation of certain acts


Any act or thing done or purporting to have been
done under the principal act, in respect of settlement of
administrative and civil proceedings shall for all purpose be
deemed to be valid and effective as if the amendments made
to the principal act had been in force at all material times.

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