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LEGALFRAMEWORK
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Theresponsibilityforregulating thesecuritiesmarketissharedby...
1. Department
of
Economic
Affairs
(DEA)
3. ReserveBank
of
India
(RBI)
4. SecuritiesandExchangeBoardofIndia(SEBI)
5. SecuritiesAppe ate
Tri una
SAT
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LegalFrameworkdealswithlegislativeandregulatoryprovisions
relevantfrom
the
viewpoint
of
atrading
member.
1. SecuritiesContracts(Regulation)Act,1956, whichprovidesforregu ationo transactionsinsecuritiest roug contro overstoc
exchanges
. c , w c es a s es opro ec nves orsan eve opandregulatesecuritiesmarket
. ,transferofownershipofdematerialisedsecurities
.
,
,
corporatesectorinrelationtoissue,allotmentandtransferofsecurities,anddisclosurestobemadeinpublicissues
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SecuritiesContracts
Re ulation
Act
1956
The Securities Contracts Re ulation Act 1956 SC R A was
enacted to prevent undesirable transactions in securities byregulating the business of dealing there in and by providing for
.
Act, which governs the trading of securities in India.
The SC(R) Act deals with-
Stock exchanges, through a process of recognition and continued
su ervision
Contracts in securities,
Listing of securities on stock exchanges.
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Recognitionofstockexchanges
SEBIisempoweredtograntrecognitionandprescribeconditionstoanystockexchange
SEBIisauthorisedtocallfor eriodicalreturnsfromthereco nisedStockExchangesandmakeenquiriesinrelationtotheiraffairs.
regulationandcontrolofcontractsbutsubjecttothepreviousapprovalofSEBI
TheCentralGovernmentandSEBIhavethepowertosupersedethegoverningbodyofanyrecognisedstockexchange
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ContractsinSecurities
Organizedtrading
activity
in
securities
takes
place
on
arecognised
stockexchange
Ifatransactioninsecuritieshastobevalidlyenteredinto,sucha
transactionhas
to
be
either
between
the
members
of
arecognised
stockexchangeorthroughamemberofaStockExchange.
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Listing of Securities
Where securities are listed on the application of any person in any
recognised stock exchange, such person shall comply with theconditions of the listing agreement with that stock exchange (Section
21 .
Where a recognised stock exchange acting in pursuance of any powerg ven o y s ye- aws, re uses o s e secur es o any company,
the company shall be entitled to be furnished with reasons for such
refusal and the company may appeal to Securities Appellate Tribunal
aga nst suc re usa .
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Contractsbetweenmembersofrecognisedstockexchange
Everymemberofarecognisedstockexchangeshallmaintainandpreservethefollowingbooksofaccountanddocumentsforaperiod
Fiveyears
Registerof
transactions
(Sauda
book).
Clients'ledger.
.
Journals.
Cashbook.
Bankpass
book.
Documentsregistershowingfullparticularsofsharesandsecuritiesreceivedanddelivered.
Twoyears
Members'
contract
books
showing
details
of
all
contracts
entered
into
by
him
with
othermembersofthesameexchangeorcounterfoilsorduplicatesofmemosofconfirmationissuedtosuchothermembers.
Counterfoilsorduplicatesofcontractnotesissuedtoclients.
Writtenconsento c ientsinrespecto contractsentere intoasprincipa s. Ru e15
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SecuritiesandExchangeBoardofIndiaAct,1992
SEBIhasstatutorypowersfor:
Protectingtheinterestsofinvestorsinsecurities,
Promotingthedevelopmentofthesecuritiesmarket,and
Regulatingthesecuritiesmarket.
CompanieslistedorintendingtogetlistedonStockExchangesintheissuanceofsecuritiesandtransferofSecurities,
Allintermediariesandpersonsassociatedwithsecuritiesmarket.
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Constitution of SEBI
SEBI (Securities & Exchange Board of India) consists of the followingmem ers :-
A Chairman
Two members from amongst the officials of the Ministries of the CentralGovernment dealin with Finance and administration of Com anies Act,1956
Five other members of whom at least three shall be whole time members.
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SEBI(StockBrokers&SubBrokers)Rules,1992
CapitalAdequacyRatio(CAR)NormsforBrokers
Eachstockbrokerissubjecttocapitaladequacyrequirementsconsistingoftwo
components:(1)Baseminimumcapital,and
.
RegistrationofStockBroker
SEBItakesintoaccountforconsideringthegrantofacertificatewhetherthestockbroker:
iseligibletobeadmittedasamemberofastockexchange,
as
e
necessary
n ras ruc ure
e
a equa e
o ce
space,
equ pmen
an
man
powerto
effectively
discharge
his
activities,
hasanypastexperienceinthebusinessofbuying,sellingordealinginsecurities,
issubjectedtodisciplinaryproceedingsundertherules,regulationsandbyelawsofas oc exc angew respec o s us nessasas oc ro er nvo v nge erhimselforanyofhispartners,directorsoremployees,and
isafit
and
proper
person.
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Codeofconduct
ThestockbrokerholdingacertificateatalltimesabidesbytheCodeofConduct
I. General
ExerciseofDueSkillandCare
Manipulation
Malpractices CompliancewithStatutoryRequirements
II.Dut
to
the
investor
ExecutionofOrders
IssueofContractNote
BreachofTrust:
BusinessofDefaultingClients
FairnesstoClients
InvestmentAdvice
InvestmentAdviceinpubliclyaccessiblemedia
CompetenceofStockBroker
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SEBI(InsiderTrading)Regulations,1992
InsidertradingisprohibitedandisconsideredanoffencevideSEBI(Insider
Trading)Regulations,1992.Thedefinitionsofsomeoftheimportanttermsare
Dealinginsecuritiesmeansanactofbuying,sellingoragreeingtobuy,sellor
ea nanysecur es yanypersone eraspr nc pa oragen .
Insidermeans
any
person
who
is
or
was
connected
with
the
company
or
is
deemedtohavebeenconnectedwiththecompanyandwhoisreasonably
expectedtohaveaccess,connectiontounpublishedpricesensitive
informationinrespectofsecuritiesofacompanyorwhohasreceivedorhas
a
access
o
suc
unpu s e
pr ce
sens ve
n orma on.
Pricesensitiveinformation"meansanyinformationwhichrelatesdirectlyor
indirectlytoacompanyandwhichifpublishedislikelytomateriallyaffectthe
price
of
securities
of
that
company.
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Prohibitionondealing,communicatingorcounseling
Noinsidershall
Eitheronhisownbehalforonbehalfofanyotherperson,dealinsecuritiesof
acompany s e onanys oc exc angew en npossess ono any
unpublishedprice
sensitive
information;
Communicate,
Counselor
Procure,
Directl or
Indirectly,
anyunpublishedpricesensitiveinformationtoanyperson,who,whilein
securities;Providedthatnothingcontainedaboveshallbeapplicabletoanycommunicationrequiredintheordinarycourseofbusinessorprofessionor
em lo ment or under an law.
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Policy
on
disclosures
and
internal
procedure
for
prevention
of
insidertrading
InitialDisclosure:
Anyperson
who
holds
more
than
5%
shares
or
voting
rights
in
any
listed
companyshalldisclosetothecompany,thenumberofsharesorvoting, ,
days of:
Thereceiptofintimationofallotmentofshares;or
Theacquisition
of
shares
or
voting
rights,
as
the
case
may
be.
Anypersonwhoisadirectororofficerofalistedcompany,shalldisclosetothecompany,thetotalnumberofsharesorvotingrightsheldandchan einshareholdin orvotin ri hts iftherehasbeenachan einsuch
holdingsfrom
the
last
disclosure
made
under
sub
regulation
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SEBI(ProhibitionofFraudulent&Unfairtradepracticesrelated
tosecuritiesmarkets)Regulations,1995
ro onaga ns ar e an pu a on
Prohibitionof
misleading
statements
to
induce
sale
or
purc aseo secur t es
Prohibitiononunfairtradepracticerelatingtosecurities
(Regulation6)
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TheDepositoriesAct,1996
Agreement between depository and participant
Services of de ositor
Surrender of certificate of security
Registration of transfer of securities with depository
Opt ons to rece ve secur ty cert cate or o secur t es w tdepository
Securities in de ositories to be in fun ible form
Rights of depository & beneficial owner
Pledge & Hypothecation of securities held in a depository
urn s ng o n ormat on recor s y epos tory an ssuer Option to opt out in respect of any security
De ositor to indemnif loss in certain cases
Securities not liable to stamp duty
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TheCompaniesAct,1956
Privatecompany meansacompanywhichhasaminimumpaidupcapitalofonelakhrupees orsuchhigherpaidupasmaybeprescribedandbyitsarticles
Restrictstherighttotransferitsshares,ifany;
Limitsthe
number
of
its
members
to
fifty;
ProhibitsanyinvitationtothepublictosubscribeforanysharesinorDebenturesofthecompany;
Prohibitsanyinvitationoracceptanceofdepositsfrompersonsotherthanitsmembers,directorsortheirrelatives
u ccompany meansacompanyw c
Isnotaprivatecompany;
Hasaminimumpaidupcapitaloffivelakhrupees orsuchhigherpaidupcapital,asmaybe
prescribed; Isaprivatecompanywhichisasubsidiaryofacompanywhichisnotaprivatecompany.
Theminimumnumberofpersonsrequiredtoformapubliccompanyisseven andtheminimumnumberofpersonsrequiredtoformaprivatecompanyistwo.
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Buy
ac
o
secur t es
Sect on77A
companymaypurc ase sowns aresoro er
specifiedsecurities
out
of
Freereserves;or
Theproceedsofanysharesofotherspecifiedsecurities.
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Conditionstobesatisfiedforbuyback
Thebuybackmustbeauthorisedbyitsarticles;
Aspecialresolutionshallbepassedingeneralmeetingofthecompanyauthorizingbuyback;
Thebuy
back
shall
be
equal
to
or
less
than
25%
of
the
total
paid
up
capital
andfreereservesofthecompany
anditsfreereservesaftersuchbuyback
Allthesharesorotherspecifiedsecuritiesforbuybackarefullypaidup;
Thebuy
back
of
listed
securities
is
in
accordance
with
SEBI
Regulations;
ThebuybackofunlistedsecuritiesisinaccordancewithguidelinesprescribedbyCentralGovernment.;
passingthe
special
resolution
or
aresolution
passed
by
the
Board.
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AnnualReturn(Sections159&160)
EveryCompanyshallwithinsixtydaysfromthedayonwhichtheAnnual
GeneralMeetingisheld,prepareandfileAnnualReturnwithRegistrarof
Companies
AnnualGeneralMeeting(Section166)
relevantdatesasprescribedundersection166togetherwithsection210:
15
months
from
the
previous
annual
general
meeting; .
6monthsfromthecloseofthefinancialyear,
daysnotice inwriting.
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Dividend(Section205)
Dividendshallbedeclaredorpaidbyacompanyforanyfinancialyear
Outoftheprofitsofthecompanyforthatyeararrivedatafterprovidingfordepreciationinaccordancewiththeprovisionsofsection205(2)oftheAct,or
Outoftheprofitsofthecompanyforanypreviousfinancialyearoryearsarrivedatafter rovidin forde reciationinaccordancewiththose rovisionsandremainin undistributed,or
Out
of
both
above
or
OutofmoneysprovidedbytheCentralGovernmentoraStateGovernmentforthepaymentofdividendinpursuanceofaguaranteegivenbythatGovernment.
e
amoun
o
v en
s a
e
epos e
n
a
separa e
an
accoun
w n
ve
aysfromthe
date
of
declaration
of
dividend.
The
dividend
shall
be
paid
within
thirty
days fromthedateofitsdeclaration.
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InvestorEducationandProtectionFund (Section205C)
Thefundshallbecreditedwith:
Amountsintheunpaiddividendaccountsofcompanies,
Applicationmoneysreceivedbycompaniesforallotmentofanysecuritiesanddueforrefund,
Matureddeposits
with
companies,
Matureddebentureswithcompanies,
e n eres accrue on eamoun sre erre oa ove a o ,
Grants
and
donations
given
to
the
Fund
by
the
Central
Government,
State
Governments
com aniesor
an
other
institutions
for
the
ur oses
of
the
Fund;and
TheinterestorotherincomereceivedoutoftheinvestmentsmadefromtheFund:Providedthatnosuchamountsreferredtoinclauses(a)to(d)shall
unpaidfor
aperiod
of
seven
years
from
the
date
they
became
due
for
payment.
TheInvestorEducationandProtectionFundshallbeutilisedforpromotionofawarenessamongsttheinvestorsandfortheprotectionoftheinterestsof
investorsin
accordance
with
such
rules
as
may
be
prescribed.
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an you