SRI GANESH COLLEGE OF ARTS AND SCIENCE, SALEM

Name B.Com Subject : Financial market operations : Sri priya Class : III

SECURITIES CONTRACTS (REULATION) ACT Trading in Securities became a central subject under the Constitution adopted in 1951. The law which regulates this is the Securities Contract (Regulation) Act (the SCR Act) which was enacted in 1956 to prevent undesirable transactions in securities, and came into force on Feb. 20,1957. It regulates the business of trading in the stock exchanges and options trading and provides for recognition of stock exchanges and related matters like listing of securities transfer of securities etc. Objectives The Act defines what is a security and the powers of Government on the stock exchanges and their members. The Government can institute enquiries, direct investigations, call for books of accounts, reports and information. The Act also lays down what transactions in insecurities are legal and what are void and illegal. Coverage The Scheme of the SCR Act can broadly be divided under three main headings as under: (i) Sections 3 to 12, which deal with constitution of, recognized stock exchanges. (ii) Sections 13 to 20, which deal with contracts and options in securities. (iii) Section 21 to 22 A, which deal with listing of securities by public companies and the free transferability thereof. The rest of the Sections in the Act relate to miscellaneous matters like penalties, etc. Recognized Stock Exchanges Section 3 of the SCR lays down that a stock exchange is required to apply to The Central Government for recognition. In terms of Rule 3 of the Securities Contracts (Regulation) Rules, 1957 (the SCR Rules), this application has to be made in the prescribed Form A. The application for recognition in Form A, has to be accompanied by a copy of the bye laws of the stock exchange and also a copy of the rules of the stock exchange. On receiving such application, the Central Government, in terms of Section 4 of the SCR Act read with Rule 5 A of the SCR Rules, makes an inquiry as to whether the rules and bye-laws are in conformity with prescribed conditions and whether it would be in the interest of the trade and public, to grant recognition to the applicant stock exchange. After making such an enquiry and if the Central Government is satisfied that the prescribed conditions have been met, it grants

recognition to the stock exchange. Such recognition is granted in Form B as prescribed under Rule 6 of the SCR Rule and it may be for a temporary period or on a permanent basis. The Bombay Stock Exchange was the only Exchange, which was recognized on a permanent basis from the beginning of the operation of the Act. Section 5 of the SCR Act empowers the Central Government to withdraw recognition granted to a stock exchange, if the Central Government is of the opinion that in the interest of the trade or in the public interest, such recognition should be withdrawn. Section 6 of the SCR Act, empowers the Central Government to call for periodical returns from a recognized stock exchange and also to direct inquiries to be made in relation to prescribed matters. Under Section 7 of the SCR Act, a copy of the Annual Report is to be furnished to the Government and such Annual Report has to contain the particulars prescribed in Rule 17 of the SCR Rules. Section 9 of the SCR Act empowers a registered stock e exchange to make byelaws for the regulation and control of contracts. These rules, bye-laws and regulations lay down all the details about the functioning of the Stock exchange and its members and dealings by and between the members. Section 10 of the SCR Act empowers the Central Government to supercede the governing body of a recognized stock exchange. Section 12 of the SCR Act empowers the Central Government, in the case of an emergency, to direct a recognized stock exchange to suspend its business for such period as the Central Government may direct. These powers are now exercised by SEBI. Options in Contracts The word contract has been defined in Section 2 (a) of the SCR Act to mean a contract for or relating to the purchase of securities. The expression option in securities means a contract for the purchase or sale of a right to buyer or sell securities in future and a contract for the purchase or sale of a right to buy and sell securities in future. The expression spot delivery contract and an option in securities is that the latter is a contract in future of an intangible right to buy or sell the securities or to buy and sell the securities, while the former provides for actual purchase and delivery of securities. Listing of Securities by Public Companies Listing is not compulsory under the Companies Act but where a public limited company desires to issue shares/debentures to the public through a prospectus, listen is necessary under Section 73 of the Companies Act, 1956. Section 21 of the SCR Act empowers the Central Government to compel a company to list its securities, if the Central Government is of the opinion that having regard to the nature of the securities issued by a public company or to the dealings in them it is necessary or expedient in the interest of the trade or in the public interest to do so. When a public company applies for listing it has to furnish to the recognized stock exchange various particulars as prescribed in Rule 19.

The said Rule 19 also lays down that unless this requirement is relaxed by the Central Government, a public company, which applied for listing must ensure that at least 60% of each class or kind of securities issued by the company was offered to the public for subscription and that applications receive of such offer were allotted fairly and unconditionally. Restrictions on Transferability Section 22A was introduced I the SCR Act and has come into force effective from 17the Jan. 1986. The net effect of this Section is that a public company whose securities are listed on a recognized stock exchange cannot refuse to transfer shares lodged with it for transfer, unless the case for refusal falls under the specific provisions laid down in Section 22 A. Thus, a public company whose shares are listed on a recognized stock exchange can refuse an application for transfer only on the following grounds, viz.: (i) That the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company, or that any other requirement under the law relating to registration of such transfer has not been complied with; (ii) That the transfer is in contravention of any law; (iii) That the transfer is likely to result in such change in the composition of the board of directors as would be prejudicial to the interests of the company or to the public interest (iv) That the transfer is prohibited by any order of any court, tribunal or other authority under any law for the time being in force.

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