Page 30 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 2: Securities Market: An Overview

9. SEBI permitted the derivative segment of two stock exchanges, i.e. NSE and BSE, and their Notes
clearing house/corporation to commence trading and settlement in approved derivative
contracts.
10. Single stock futures were launched on November 9, 2001.

2.3 Regulatory Framework

The five main legislations governing the securities market are: (a) the SEBI Act, 1992 which
established SEBI to protect investors and develop and regulate securities market; (b) the
Companies Act, 1956, which sets out the code of conduct for the corporate sector in relation to
issue, allotment and transfer of securities, and disclosures to be made in public issues; (c) the
Securities Contracts (Regulation) Act, 1956, which provides for regulation of transactions in
securities through control over stock exchanges; (d) the Depositories Act, 1996 which provides
for electronic maintenance and transfer of ownership of demat securities; and (e) the Prevention
of Money Laundering Act, 2002 which prevents money laundering and provides for confiscation
of property derived from or involved in money laundering.

2.3.1 Legislations

Capital Issues (Control) Act, 1947: The Act had its origin during the war in 1943 when the
objective was to channel resources to support the war effort. It was retained with some
modifications as a means of controlling the raising of capital by companies and to ensure that
national resources were channelled into proper lines, i.e. for desirable purposes to serve goals
and priorities of the government, and to protect the interests of investors. Under the Act, any
firm wishing to issue securities had to obtain approval from the Central Government, which
also determined the amount, type and price of the issue. As a part of the liberalisation process,
the Act was repealed in 1992 paving way for market determined allocation of resources.
SEBI Act, 1992: The SEBI Act, 1992 was enacted to empower 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 corporates in the issuance of capital and transfer of securities, in addition to all intermediaries
and persons associated with securities market. It can conduct enquiries, audits and inspection of
all concerned and adjudicate offences under the Act. It has powers to register and regulate all
market intermediaries and also to penalise them in case of violations of the provisions of the
Act, Rules and Regulations made there under. SEBI has full autonomy and authority to regulate
and develop an orderly securities market.
Securities Contracts (Regulation) Act, 1956: It provides for direct and indirect control of virtually
all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable
transactions in securities. It gives Central Government regulatory jurisdiction over (a) stock
exchanges through a process of recognition and continued supervision, (b) contracts in securities,
and (c) listing of securities on stock exchanges. As a condition of recognition, a stock exchange
complies with conditions prescribed by Central Government. Organised trading activity in
securities takes place on a specified recognised stock exchange. The stock exchanges determine
their own listing regulations which have to conform to the minimum listing criteria set out in
the Rules.

Depositories Act, 1996: The Depositories Act, 1996 provides for the establishment of depositories
in securities with the objective of ensuring free transferability of securities with speed, accuracy
and security by (a) making securities of public limited companies freely transferable subject to
certain exceptions; (b) dematerialising the securities in the depository mode; and (c) providing
for maintenance of ownership records in a book entry form. In order to streamline the settlement

LOVELY PROFESSIONAL UNIVERSITY 25