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Indian Financial System

Notes for maintenance of ownership records in a book entry form. In order to streamline the settlement
process, the Act envisages transfer of ownership of securities electronically by book entry,
without making the securities move from person to person. The Act has made the securities of
all public limited companies freely transferable, restricting the company's right to use discretion
in effecting the transfer of securities, and the transfer deed and other procedural requirements
under the Companies Act have been dispensed with.

Regulators

The responsibility for regulating the securities market is shared by Department of Economic
Affairs (DEA), Ministry of Company Affairs, Reserve Bank of India (RBI) and SEBI. The activities
of these agencies are coordinated by a High Level Committee on Capital Markets. The orders of
SEBI under the securities laws are appealable before a Securities Appellate Tribunal.

Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI. The
powers of the DEA under the SCRA are also concurrently exercised by SEBI. The powers in respect
of the contracts for sale and purchase of securities, gold related securities, money market securities
and securities are derived from these securities and the RBI exercises carry forward contracts in
debt securities concurrently. The SEBI Act and the Depositories Act are mostly administered by
SEBI. The powers under the Companies Act relating to issue and transfer of securities and non-
payment of dividend are administered by SEBI in case of listed public companies.

Regulation of Secondary Market

As noted above, Securities Contracts (Regulation) Act 1956 and the rules made there under,
namely the Securities Contracts (Regulation) Rules, 1957 are the main laws governing stock
exchanges in India.
The Preamble to the Securities Regulation Act states that it is "an act to prevent undesirables
transaction in Securities by regulating the business of dealing therein, by prohibiting options
and by providing certain other matters connected therewith". This Act provides for the direct
and indirect control of virtually all aspects of securities leading and the running of the stock
exchange. The Act makes every transaction in securities in any notified state area illegal and
punishable by fine and/or imprisonment if it is not entered into between or with members of a
recognized stock exchange in the state or area.
The Act thus prohibits the existence of other than recognized stock exchanges and provides the
mechanism recognizing stock exchanges. Application to the Central Government for recognition
must include a copy of the rules relating in general to the constitution of the stock exchange and
in particular to, among other things, the admission into the stock exchanges of various bases of
members, the exclusion, expulsion and readmission of members, and the procedure for
registration of a stock exchange. In determining whether to grant recognition, the Central
Government may make whatever require is necessary and impose in the rules and bylaws of the
stock exchanges, whatever conditions are required to ensure "fair dealing" and to "protect
investors" These conditions concern, inter alia, the qualification for members, the manner in
which contracts are to be entered into and enforced, the representation of not more than three
Central Government nominees on the board of the stock exchange, and the maintenance of
books and record by members and their audit by chartered accountants. The Central Government
has the power to impose further conditions, other than in the rules and bylaws, such as limiting
the number of members. Finally, the Central Government has the power unilaterally to withdraw
recognition.
After it recognizes a stock exchange, the Central Government exerts regulatory control over it,
and reports are furnished to the Central Government. Certain books and records are maintained
for a period years. The Central Government can make an equity itself, or through an appointment

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