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Securities market are extremely important to the development of any economy. To run different components of the securities market impeccably, all of them need to be regulated by different legislative bodies. Between 1992-2003 there were 9 special legislative interventions (regarding regulating the securities market) which included 2 new enactments: SEBI Act 1992 & Depositaries Act 1996.

SEBI Act 1992 established SEBI with statutory responsibilities to:

  • Protect the interest of investors in securities
  • Promote the development of the securities market
  • Regulate the securities market

Furthermore, Capital Issues (Control) Act 1947 was also repealed to ensure market-determined allocation of resources. This was followed by the amendment of Securities Law (Amendment) Act in 1995 thereby extending SEBI’s jurisdiction over corporates in the issuance of capital & transfer of securities.

Let’s have a look at some basic concepts revolving around the securities law.

KYC

Every person who wants to invest in the securities market should be KYC (Know Your Client) compliant. There are KYC Registration Agency Regulations 2011 to bring uniformity in KYC procedures across intermediaries & centralization of KYC records in the securities market.

Public Offer & Listing

Listing means the admission of securities of a company for the purpose of trading on a stock exchange. Only public companies (and not private companies) can get listed. Listing is governed by the provisions in the Companies Act, 2013, the Securities Contracts (Regulation) Rules, 1957, rules, bye-laws, regulations of concerned stock exchange, the listing agreement entered into by the issuer and stock exchange and circulars/guidelines issued by the Central Government and SEBI.

Role of Intermediaries

Intermediaries help investors to select the right investment by providing consultancy, market analysis and credit rating of investment instruments. Registrar and Share Transfer Agents, Custodians, and Capital Market Intermediaries provide infrastructure services to both primary & secondary markets.

Disclosure Standard

In the interest of investors, SEBI issued Disclosure & Investors Protection (DIP) guidelines. The guidelines allow issuers (who comply with the eligibility criteria) to issue securities at market determined rates. Recently, guidelines have been issued by SEBI for the disclosure of “reasons for encumbrance” on the shareholding of the promoters.

Takeover Regulations

Takeover regulations protect the interest of minority shareholders which is a fundamental attribute of corporate governance principal. SEBI SATS(Substantial Acquisition of Shares & Takeovers) Regulations 2011 aims to protect the interest of investors in securities of a listed company by providing an opportunity for the public shareholders to exit where there is a substantial acquisition of shares or voting rights or control over a listed company, consolidation of holdings by existing shareholders and related disclosures and penalties for non-compliance etc.

Insider Trading and Unfair Trade Practice

Insider trading is the illegal practice of trading on a stock exchange to one’s own advantage through the access to confidential information. It is the buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security. SEBI (Insider Trading) Regulations were formulated in 1992 to regulate this unfair practice. Companies Act 2013 also prohibits directors and key managerial personnel from purchasing call and put options of shares of the company, its holding company and its subsidiary and associate companies as if such person is reasonably expected to have access to price-sensitive information (which, if published, is likely to affect the price of the company’s securities).

Delisting of Securities

Delisting means removing the listing of securities of a listed company from a stock exchange. A company may delist its securities from a stock exchange, provided the securities of the company have been listed for at least 3 years.

Corporate Governance

Corporate governance is an ethically driven business process that is committed to values aimed at enhancing an organization’s wealth-generating capacity.

Grievance Redressal Mechanism

Securities Appellate Tribunal is established under the provisions of Section 15K of SEBI Act 1992 to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India or by an adjudicating officer under the Act and to exercise jurisdiction, powers, and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.

These are the basic concepts related to Securities Market. Let us know in the comments section if you want any specific topic to be covered. Wishing you all the best for your SEBI Officer Grade A preparation!

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