ncfm training - cm chapter 4

8/14/2019 NCFM Training - CM Chapter 4

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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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