Securities Law And Regulation: Market Regulation By Companies Act, 1956

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 nonstatutory 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