The securities market in India is regulated by 4 key legal guidelines — The Companies Act, 2013, the Securities and Exchange Board of India Act, 1992 (SEBI Act), the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Depositories Act, 1996. File
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The story thus far: On February 10, the Supreme Court requested the Securities and Exchange Board of India (SEBI) and the authorities to supply the current regulatory framework in place to guard traders from share market volatility. After quick vendor Hindenburg Research printed a report in January accusing the Adani Group of stock market manipulation and accounting fraud, its shares plummeted and traders have been reported to have misplaced lakhs of crores.
What are the legal guidelines governing the market?
The securities market in India is regulated by 4 key legal guidelines — The Companies Act, 2013, the Securities and Exchange Board of India Act, 1992 (SEBI Act), the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Depositories Act, 1996. The framing of those legal guidelines replicate the evolution and growth of the capital market in India.
The SEBI Act empowers SEBI to guard the pursuits of traders and to advertise the growth of the capital/securities market, in addition to regulating it. SEBI was given the energy to register intermediaries like stock brokers, service provider bankers, portfolio managers and regulate their functioning by prescribing eligibility standards, circumstances to hold on actions and periodic inspections. It additionally has the energy to impose penalties resembling financial penalties, together with suspending or cancelling the registration. The SCRA empowers SEBI to recognise (and derecognise) stock exchanges, prescribe guidelines and bye legal guidelines for his or her functioning, and regulate buying and selling, clearing and settlement on stock exchanges. As a part of the growth of the securities market, Parliament handed the Depositories Act and SEBI made laws to implement the provisions. This Act launched and legitimised the idea of dematerialised securities being held in an digital type. Today virtually all the listed securities are held in dematerialised type. SEBI arrange the infrastructure for doing this by registering depositories and depository individuals. The depository laws empower SEBI to manage functioning of depositories and depository individuals by prescribing eligibility circumstances, periodic inspections and powers to impose penalties together with suspending or cancelling the registration in addition to financial penalties.
Can SEBI step in to curb market volatility?
While SEBI doesn’t intrude to stop market volatility, exchanges have circuit filters — higher and decrease — to stop extreme volatility. But SEBI can concern instructions to those that are related to the market, and has powers to manage buying and selling and settlement on stock exchanges. Using these powers, SEBI can direct stock exchanges to cease buying and selling, completely or selectively. It can even prohibit entities or individuals from shopping for, promoting or dealing in securities, from elevating funds from the market and being related to intermediaries or listed corporations.
What are the pointers on fund-raising?
The Companies Act, which regulates corporations integrated/registered in India, has delegated the authority to implement a few of its provisions to SEBI, together with the regulation of elevating capital, company governance norms resembling periodic disclosures, board composition, oversight administration and backbone of investor grievances. In order to manage fund-raising actions, SEBI first introduced out a set of pointers referred to as the Disclosure and Investor Protection Guidelines which have been thereafter subsumed right into a extra complete Issue of Capital and Disclosure Requirement Regulations. In order to make sure that listed corporations adopted company governance norms, SEBI notified the Listing Obligations and Disclosure Requirements Regulations in 2015.
Besides these laws, the Collective Investment Regulations outline a CIS (collective funding scheme) and supply for penal actions towards these working unregistered CIS schemes. Entities concerned in fund-raising by means of concern of capital resembling service provider bankers are additionally regulated by means of particular laws.
What about stock exchanges?
The SCRA has empowered SEBI to recognise and regulate stock exchanges and later commodity exchanges in India; this was earlier achieved by the Union authorities. In truth, the time period “securities” is outlined in the SCRA and powers to declare an instrument as a safety stay vested in SEBI. The guidelines and laws made by SEBI below the SCRA relate to itemizing of securities like fairness shares, the functioning of stock exchanges together with management over their administration and administration. These embody powers to find out the method in which a settlement is achieved on stock exchanges (and to maintain them with the instances for e.g. T+1) and recognising and regulating clearing firms, that are central to the administration of the buying and selling system.
An vital facet of the regulation of stock exchanges is additionally the provision for arbitrating disputes that come up between stock brokers who commerce on stock exchanges and traders who’re purchasers of such stock brokers. The Act additionally seeks to guard the pursuits of traders by creating an Investor Protection Fund for every stock trade.
What are the safeguards towards fraud?
Fraud undermines regulation and prevents a market from being truthful and clear. SEBI notified the Prohibition of Fraudulent and Unfair Trade Practices Regulations in 1995 and the Prohibition of Insider Trading Regulations in 1992 to stop the two key types of fraud, market manipulation and insider buying and selling. These laws, learn with provisions of the SEBI Act, outline species of fraud, who is an insider and prohibit such fraudulent exercise and supply for penalties together with disgorgement of ill-gotten good points. It should be famous that violation of those laws are predicate offences that may result in a deemed violation of the Prevention of Money Laundering Act. SEBI has been given powers of a civil court docket to summon individuals, seize paperwork and data, connect financial institution accounts and property and to hold out investigations. Using these powers, SEBI has acted towards entities and people like Satyam, Sahara India, Ketan Parekh and Vijay Mallya.
Corporate actions embody acquisition of different corporations, merger of corporations and purchase again of shares; SEBI has notified the Substantial Acquisition of Shares and Takeovers Regulations to make sure that acquisitions and alter of administration are achieved solely after giving a chance to public shareholders to exit the firm in the event that they need to. The wealth of traders features a portfolio of securities. SEBI ensures safety of traders’ pursuits by regulating the itemizing and buying and selling of fairness shares and different securities, and by registering and regulating establishments dealing with public funds. Appeals towards orders of SEBI and the stock exchanges might be made to the Securities Appellate Tribunal (SAT) comprising three members. Appeals from the SAT might be made to the Supreme Court.
The author is a securities lawyer in Mumbai.
