Securities Contract Regulation Act: Salient Features

By | September 22, 2019
securities contract regulation act:salient features

 This article discusses the securities contract regulation Act: salient features. The Parliament introduced another legislation for the regulation of the affairs in relation to the securities market of India. This legislation is known as the Securities Contracts (Regulation) Act and came into force in the year 1956.

The securities market provides a platform for the trading of securities or transactions related to securities. The role that a stock market plays is indispensable for leading the economic growth of any country. The stock market of India extends a hand of help to get the funds mobilized from the small savings done by the investors. It further helps to channelize these resources for getting the various needs of the different sections of the economy of the country fulfilled.

The main aim of the above-mentioned legislation was to do away with all those transactions of securities that are undesirable in nature. This is to be done by the regulation of the business dealing therein and also provides for various other matters that are in relation to it.

MEANING OF SECURITIES

Security is a financial method to represent ownership in a stock or publicly traded Corporation, a Corporation bond or a relationship of the creditor with a government body or ownership right as depicted by an option. Security can also be defined as a document of settled requisites or forms, which mirrors the related property rights that may self- refer to the market and be the object of buying and selling and various transaction exchanges, which is a type of money capital.

Sec 2(h) of theSecurities Contract (Regulation) Act, 1956 gives an inclusive definition of securities, which is as follows:

“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 bodies corporate;

[(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;]

[(ic)security receipt as defined in clause (zg) of section 2 of the Securitisation and reconstruction of Financial Assets and Enforcement of Security Interest Act,2002;]

[(id) units or any other such instrument issued to the investors under any mutual fund scheme;]

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government to securities; and

(iii) rights or interest in securities;

[(i) “spot delivery contract” means a contract which provides for,—

(a) actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality;

(b) transfer of the securities by the depository from the account of a beneficial owner to the account of another beneficial owner when such securities are dealt with by a depository;]

MAJOR PROVISIONS

The salient features of the Act are that it had provided the power to the Central Government or SEBI to look into certain matters. Some of them are as follows:

  • The matters in relation to the regulation of listing of securities.
  • The power of superseding the body that governs any of the stock exchanges due to the presence of some specific reasons
  • The power of getting the business of any stock exchange suspended
  • The cases where it is required to monitor the functioning and activities related to the stock exchanges by the mode of calling for information of specific nature and periodic returns
  • The power to pass directions to the stock exchanges for making or amending rules as well as bye-laws
  • The power to give approval to the rules and regulations. In addition to it, they are also vested with the power of giving approval to the bye-laws of any of the recognized stock exchanges.
  • The power to either withdraw recognition or grant recognition to any other stock exchange.

RECOGNITION OF STOCK EXCHANGE

As per sec 3 of the Act, a specific procedure that has enabled the stock exchange to make an application in a certain manner if it wants to get recognized by the Government. However, the procedure that has to be followed by the government for granting the recognition to the stock exchange is laid down in sec 4.

The power to grant recognition to the stock exchanges is given to SEBI along with the Central Government. There are certain requirements that have to be fulfilled before recognition can be granted to the stock exchange by the Central Government such as a proper inquiry has to be undertaken by the Central Government to check whether the stock exchange, which is applying for getting registered, has made such rules and bye-laws that are in line with the condition prescribed for protecting the interests of the investors as well as ensuring the fair dealing.

SALIENT FEATURES OF THE ACT

The Act was laid down when the government had realized the ills and wrongs going on in the stock market. Some of the salient features of the Act are as follows:

  • There should be a single recognized stock exchange in the whole region in order to have a unitary control.
  • It is important for the dealers as well as the brokers to have a proper license if they are outside the ambit covered by the recognized stock exchange.
  • The Central government has been provided with the power to formulate the bye-laws and then amend them. Any step in furtherance of this power can be taken by the Government only after consulting the governing bodies of the recognized stock exchanges.
  • No individual is allowed to enter into the transactions known as future dealings. This is so because the future dealings have been provided the status equivalent to that of the gambling contracts.
  • The recognized stock exchange is required to make a submission of the periodical returns regarding the affairs. Further, it is also required by the stock exchanges to submit all the necessary information to the Government from time to time.
  • The Central Government is provided with the privilege of using the power to compel any company which is a public listed company in nature to get its securities listed When a company makes an appeal, the chance is given to the company to either set aside or vary the refusal by the stock exchange for getting the securities listed.
  • If any abnormal situation arises, it is the full-fledged right that is provided to the central government to make a withdrawal from the recognition provided to the governing body of the exchanges.
  • Once the Central Government gives the approval to any of the recognized stock exchanges, it has the opportunity to prepare its own bye-laws for having control over the contracts as well as regulating those contracts.

Stock markets are also known as the gambling dens of the brokers. The reason behind such a term is the evils that the stock market has been subject to in the past. The government had laid down this legislation when there was no other choice left with it because there were a lot of malpractices taking place in the market as well as in the working conditions of these stock exchanges. Thus, this stock exchange was taken under the control of the central government since 1956.


  1. Concept Of Securities And Investment Law(Opens in a new browser tab)

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