Page 204 - DCOM510_FINANCIAL_DERIVATIVES

Unit 13: Regulatory Framework

Notes
Did u know? SEBI has full autonomy and the authority to regulate and develop an orderly
securities market.
2. Securities Contracts (Regulation) Act, 1956: This Act provides for the 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 the Central Government
regulatory jurisdiction over (a) stock exchanges through a process of recognition and
continued supervision, (b) contracts in securities, and (c) the listing of securities on the
stock exchanges. As a condition of recognition, a stock exchange complies with the
conditions prescribed by the 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.
3. 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 the maintenance of ownership records in a book
entry form. In order to streamline the settlement process, the Act envisages the 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.
4. Companies Act, 1956: It deals with the issue, allotment, and transfer of securities, as well
as various aspects relating to company management. It provides the standard of disclosure
in public issues of capital, particularly in the fields of company management and projects,
information about other listed companies under the same management, and the
management’s perception of risk factors. It also regulates underwriting, the use of premium
and discounts on issues, rights, and bonus issues, the payment of interest and dividends,
the supply of annual reports, and other information.
5. Prevention of Money Laundering Act, 2002: The primary objective of this Act is to prevent
money laundering, and to allow the confiscation of property derived from or involved in
money laundering.

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Caution According to the definition of “money laundering,” anyone who acquires, owns,
possess, or transfers any proceeds of crime, or knowingly enters into any transaction that
is related to the proceeds of crime either directly or indirectly, or conceals or aids in the
concealment of the proceeds or gains of crime within India or outside India commits the
offence of money laundering.
Besides prescribing the punishment for this offence, the Act provides other measures for the
prevention of money laundering. The Act also casts an obligation on the intermediaries, the
banking companies, etc. to furnish information of such prescribed transactions to the Financial
Intelligence Unit-India, to appoint a principal officer, to maintain certain records, etc.

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