SECURITIES LAW AND REGULATION

Market Regulation By Companies Act, 1956

Provisions of the Companies Act,1956 have a bearing on

the securities market namely-

•Kinds of share capital that a company may raise

•Issue prospectus

•Make an application to the recognized stock exchange

•Prescribe rule for allotment of shares

•Rules for right issues, bonus issue, shares at a premium,

Shares at discount, Redemption of shares etc.
THE SECURITIES CONTRACTS (REGULATION) ACT, 1956

•Gorwalla Committee was appointed by the Government

headed by A.D. Gorwalla on stock exchange regulations

•Bill was introduced in Parliament that became law on

September 4, 1956 and came into force from Feb20, 1957

•Objective of the Act is to prevent undesirable transaction

in securities by regulating of dealing

•Obtain recognition either from Central Government or

from SEBI

•Act requires the dealer in Securities to obtain license

SEBI to regulate their dealing in securities
REGULATORY ROLE OF SEBI

•The Government of India set up the Securities and

Exchange Board of India on April 12,1988 as a non-
statutory body to promote the growth of the securities
market and also to provide adequate investor protection
Objectives:
•To promote fair dealings by the issuer of securities and
ensure a market place to raise funds at low cost

•To provide protection and safe guards their rights and

interest so that there is a steady flow of savings into the
market

•To develop a code of conduct fair practice among brokers

merchant bankers to make competitive professional
•Legal status to SEBI established under the control of
Ministry of Finance

•To regulate and develop capital market

•Promote market efficiency and build confidence among

the investors

•Apex authority in the Indian market

•Foreign investors are another major development

•For foreign investors approval of Foreign Investment

Promotion board is compulsory

•Emergence of credit rating in protecting the interest of

the investors
Powers of SEBI

Discovery and production of books of accounts

Summoning and enforcing attendance
Inspection of books, registers, and other documents
To inspect all relevant documents in fraudulent and
unfair trade practices related to security markets
Issuing commission for the examination of witness
Suspending any trading during the pending of court
matters
Levy penalties for certain offences
Levy fees and other charges
Board has the power to take appropriate action during
investigation
The Board prohibit manipulative and deceptive practice
ROLE OF STOCK EXCHANGE

•To deal with the product either to sell or purchase

•Deals with shares securities stocks and other products
•There are 24 stock exchange market in India

•BOMBAY STOCK EXCHANGE (BSE)

•Accounting for 70% of aggregate share capital and 80%
market capitalization
•Was established in 1875 Oldest and important stock
exchange in Asia
•Board comprises of 9 directors out of which one-third
retires by rotation
•Electronic and online trading is possible
•Free to fix their own terminal
NATIONAL STOCK EXCHANGE

•Incorporated in 1992, was given recognition in April 1993

•Started operation in 1994

•To establish nationwide trading facility for equities

•Ensures equal access to investors all over the country

•Fair, efficient and transparent securities to investors

•Using electronic trading system

•Enable shorter settlement cycle

•To meet current international standards of market

OVER THE COUNTER MARKET(OTC)
•Companies with an issued capital ranging from Rs.30
lakh to less than 3 crore are eligible to list their shares
under OTCEI

Characteristics
A ring less trading mechanism

Creation of liquidity

Computerized and transparent trading

Two way quotes, one for the sale and other for purchase

Exclusive list of companies

Permits trading of equity and debentures

Benefits

•A reasonable mode for private companies to offer shares

to public

•Listing companies with market capital as low as 3 crore

•Single license for a company to be listed in stock

exchange

Advantages

•Can trade through OTC set at various counter

•Introducing new players to help the small investors
•Display security price online
•Helps to reduce delay in settlement
•Provides information to all investors

Security Trader on the OTCEI

Can be brought or sold shares or debentures at OTC

Counter

Units of UTI and Mutual Funds to be traded on OTC

Activities

Buying and selling securities

Trading at the price quoted by the market

Becoming voluntary market makers

REGULATION OF STOCK EXCHANGE

Powers to SEBI
Submission of application for recognition of stock
exchange

Grant of recognition

Withdrawal of recognition

Amending Articles of Association

Issue of Notification

Spot delivery

Appeal
Powers of Managing Committee

Application for recognition

Powers of Central Government to call for periodical

returns

Recognized Stock exchange to make rules or Bye laws

Trading of Securities
NSE Trading System
Market Types
•Normal Market
•Odd lot Market
•Auction Market
•Order Books
CAPITAL MARKET/ EQUITIES SEGMENT

•Shares
•Debentures
•Warrants/ Premium notes
•Bonds
•Unit of Mutual

Listing Securities

Company enjoys concession under tax

Company gains national and international importance
Financial institution and Banks lend loan facilities
Wide distribution of shareholding and avoid takeover
Formalities Associated with Listing

Agreement should provide for interest with in 30 days of

closure

Interest @ of 15%

5 Public Shareholders of Rs 1 lakh

Requirement at NSE to be fulfilled

Requirement at BSE to be fulfilled

Buy-Back of shares
Regulation Of Depositories
Certificate of registration granted under Section 12 of the
SEBI Act,1992

Indian Government passed the Depositories Act in 1996

Depositories enables investors to hold the certificate
without any much difficulty provided it is in electronic
form

Advantages:
Filling up transfer deed and lodging the same with
company for transfer is not necessary
There would not be any bad deliveries
Exemption from paying stamp duty on transfer
Faster payment
No scope of forgery of shares certificate