Page 213 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives

Notes As per Section 2(h), the term “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 body corporate,

(ii) Derivative,
(iii) Units or any other instrument issued by any collective investment scheme to the investors
in such schemes,

(iv) Security receipts
(v) Government securities,
(vi) Such other instruments as may be declared by the Central Government to be securities,
and
(vii) Rights or interests in securities.
As per section 2(aa), “Derivative” includes:
(a) A security derived from a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract for differences or any other form of security;
(b) A contract which derives its value from the prices, or index of prices, of underlying
securities;
Section 18A provides that notwithstanding anything contained in any other law for the time
being in force, contracts in derivative shall be legal and valid if such contracts are:

(i) Traded on a recognised stock exchange;
(ii) Settled on the clearing house of the recognised stock exchange, in accordance with the
rules and bye-laws of such stock exchanges.

“Spot delivery contract” has been defined in Section 2(i) to mean 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 dispatch 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.
The SC(R)A deals with-
1. Stock exchanges, through a process of recognition and continued supervision,
2. Contracts in securities, and

3. Listing of securities on stock exchanges.

13.4.1 Recognition of Stock Exchanges

By virtue of the provisions of the Act, the business of dealing in securities cannot be carried out
without registration from SEBI. Any Stock Exchange which is desirous of being recognised has
to make an application under Section 3 of the Act to SEBI, which is empowered to grant recognition
and prescribe conditions. This recognition can be withdrawn in the interest of the trade or
public. SEBI is authorised to call for periodical returns from the recognised Stock Exchanges and
make enquiries in relation to their affairs. Every Stock Exchange is obliged to furnish annual
reports to SEBI.

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