SEMINAR ON CONTEMPORARY MANAGEMENT ISSUES

REPORT

FUNCTIONS AND
LEGAL FRAM WORK OF
STOCK EXCHANGE
{Going on the right track}

Prepared under supervision of- Submitted by -

Mrs. Richa Thakur Praveen Khandelwal

Senior Lecturer {FM} M.B.A. (II Sem.)

ISIM ISIM

International School of informatics & management

1
 CONTENTS P.NO.

INTRODUCTION

EVOLUTION OF STOCK EXCHANGES IN INDIA

2

STOCK EXCHANGES IN INDIA

3

BOMBAY STOCK EXCHANGE

3

NATIONAL STOCK EXCHANGE

5

REGIONAL STOCK EXCHANGES

7

GROWTH OF STOCK EXCHANGES

8

FUNCTINS OF STOCK EXCHANGE

9

LEGAL FRAME WORK

15

SECURITIES CONTRACTS (REGULATION) ACT 16

1956

2
 SEBI ACT, 1992
37

SEBI
38

SURVEY

Introduction

Stock Exchanges are an organized marketplace, either corporation or

mutual organization, where members of the organization gather to trade
company stocks and other securities. The members may act either as agents
for their customers, or as principals for their own accounts.
Stock broker do have a seat on the exchange.

According to Securities Contracts (Regulation) Act, 1956 Section 1 ‘Stock

exchange’ means-
(a) any body of individuals, whether incorporated or not,
constituted before corporatisation and demutualization under or
(b) a body corporate incorporated under the Companies Act, whether under a
scheme of corporatisation and demutualization or otherwise, for the purpose
of assisting, regulating or controlling the business of buying, selling or
dealing in securities;

In the ordinary sense, the term ‘stock exchange’ denotes a place where
stocks, shares and other securities are bought and sold; in other words, a
stock exchange is any organization or a group of persons which
constitutes, maintains or provides a market place or facilities for
bringing together purchasers and sellers of securities, and includes the
market place and facilities maintained by such an exchange [Black’s
Law Dictionary, 5th edition]
As per Section 2(h), the term “securities” include-
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated
company or other body corporate,
(ii) derivative,
3
 (iii) units or any other instrument issued by any collective investment
scheme to the investors in such schemes,
(iv) Security receipts,
(v) Government securities,
(vi) Such other instruments as may be declared by the Central
Government to be securities, and
(vii) Right or interests in securities.
Stock exchanges facilitates for the issue and redemption of securities and
other financial instruments including the payment of income and dividends.
The record keeping is central but trade is linked to such physical place
because modern markets are computerized.

Evolution of Stock Exchanges in India

Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago. The earliest records of security dealings in India are
meager and obscure. The East India Company was the dominant institution
in those days and business in its loan securities used to be transacted towards
the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton

presses took place in Bombay. Though the trading list was broader in 1839,
there were only half a dozen brokers recognized by banks and merchants
during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and

brokerage business attracted many men into the field and by 1860 the
number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from
United States of Europe was stopped; thus, the 'Share Mania' in India begun.
The number of brokers increased to about 200 to 250. However, at the end
of the American Civil War, in 1865, a disastrous slump began (for example,
Bank of Bombay Share which had touched Rs 2850 could only be sold at
Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil
War in 1874, found a place in a street (now appropriately called as Dalal
Street) where they would conveniently assemble and transact business. In
1887, they formally established in Bombay, the "Native Share and Stock
4
Brokers' Association" (which is alternatively known as "The Stock
Exchange "). In 1895, the Stock Exchange acquired a premise in the same
street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay
was consolidated.

Stock Exchanges in India

Bombay Stock Exchange

(BSE’s Building)

The stock exchange, Bombay, popularly known as “BSE” was

established in 1875 as “The Native Share and Stock Brokers Association”. It
is the oldest one in Asia, even older than the Tokyo Stock Exchange, which

5
was established in 1878. it is a voluntary non-profit making Association of
Persons (AOP) and is currently engaged in the process of converting itself
into demutualised and corporate entity. It has evolved over the years into its
present status as the premier Stock exchange in the country. It is the first
stock exchange in the country to have obtained permanent recognition in
1956 from the Govt. of the India under the Securities Contracts (Regulation)
Act, 1956.
The BSE provides market for trading in securities, debt and
derivatives upholds the interests of the investors and ensures redress of their
grievances whether against the companies or its own member-brokers. It
also strives to educate and enlighten the investors by conducting investor
education programs and making available to them necessary informative
inputs.

Trading at BSE
The BSE had an open outcry trading system till March 1995 where
member-brokers used to assemble in a trading ring for doing transactions in
securities. It had switched over to a fully automated computerized made of
trading known as BOLT (BSE on Line Trading) system w.e.f. March 14,
1995. Through the BOLT system, the member-brokers now enter orders for
purchase or sell of securities from Trade Work Stations (TWSs) installed in
their offices instead of assembling in the trading ring. This system, which
was initially both order and quote driven, is currently only order driven. The
facility of placing of quotes has been discontinued w.e.f., August 13, 2001 in
view of lack of market interest and to improve system- matching efficiency.
The system, which is now only order driven, facilitates more efficient-in-
putting, processing, automatic matching and faster execution of orders in a
transparent manner.
The trading in securities at the exchange is conducted in an
anonymous environment and the counterparty identity is not revealed. The
buyers and sellers of securities do not know the names of each other.
The scrips traded on the BSE have been classified into ‘A’, ‘B1’,
‘B2’, ‘F’, ‘G’ and ‘z’ groups.
The exchange has for the guidance and benefit of investors classified
the scrips in the Equity Segment in ‘A’,’B1’ &’B2’ based on certain
qualitative and quantitative parameters which include number of trades,
value traded, etc. for the guidance and benefit of investors.
The ‘F’ group represents the fixed income securities wherein 730
securities were listed as on June 30, 2003.

6
 The exchange commenced trading in Govt. securities for retail
investors under ‘G’ group w.e.f. January 16, 2003 and 85 Govt. securities
are traded on the exchange under this group as on June 30, 2003.
The ‘Z’ group was introduced by the exchange in July 1999 and
includes the companies which have failed to comply with the listing
requirements of the exchange and/or have failed to resolve investor
complaints or have not made the required arrangements with both the
Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National
Securities Depository Ltd. (NSDL) for dematerialization of their securities.
Once the companies finalize the arrangements for dematerialization of
their securities, trading and settlement in their scrips would be shifted to
their respective erstwhile groups.
The exchange also provides a facility to the market participants for
on-line trading in “C” group which covers the odd lot securities in physical
form in ‘A’. ‘B1’,’B2’ and ‘Z’ groups and Rights renunciations in all the
groups of scrips in the Equity Segment.
The ‘C’ group facility can also be used by small investors for selling
upon 500 shares in physical form in respect of scrips of companies where
trades are required to be compulsorily settled by all investors in demat
mode. This facility of selling physical shares in compulsory demat scrips is
called in Exit Route Scheme.

National Stock Exchange

Based on Pherwani Committees report submitted in June, 1991, the

National Stock Exchange of India Limited (NSEIL). Was established to
provide an efficient system eliminating all the deficiencies of stock
exchange and is geared to meet the requirements of the large investor
population. It is a single stock exchange and all other centers are
electronically linked to this exchange.

7
 NSEIL was promoted by leading FIs at the behest of Government of
India and was incorporated in November 1992 as a tax-0paying company
unlike other stock exchanges in the country. On its recognition as a stock
exchange under the Securities Contracts (Regulation) Act, 1956 in April
1993 NSEIL commenced operations in the Wholesale Debt Market (WDM)
segment in June, 1994, operations in the Capital Market (CM) in November
1994, and operations in derivatives segment in June 2000. During 1999-
2000, NSEIL accounted for 41% of total turnover in equities and 55% of
turnover of government securities in the country.

(NSE’s Building)

Capital Market Segment:-

The Capital Market (CM) segment of NSEIL provides a fully
automated screen based trading system for trading of equity and preference
shares, debentures, warrants and coupons. The trading system, known as the
National Exchange for Automated Trading (NEAT) system, is an
anonymous order-driven system and operates on a strict price/time priority.
It enables members from across the country to trade simultaneously with
enormous ease and efficiency.
Wholesale Debt Market Segment (WDM):-
The WDM segment provides the only formal trading platform for
trading of a wide range of debt securities. Initially, government securities,
treasury bills and bonds issued by public sector undertakings (PSUs) were
made available for trading. This range has been widened to include non-

8
traditional instruments like floating rate bonds, zero coupon bonds, index
bonds, commercial papers, certificates of deposit, corporate debentures, state
government loans, SLR and non-SLR bonds issued by financial institutions,
units of mutual funds and securities debt.
Derivatives Segment:-
In the Derivatives segment, NSCCL has admitted clearing Members
(CMs) distinct from Trading Member (TMs) in line with the 2-tier
membership structure stipulated by SEBI to enable wider participation in the
Derivatives Segment. All trades on the Derivatives segment are cleared
through a CM of NSCCL.
Nifty Index futures contracts are case settled, i.e. through exchange of case
differences in value. Settlement is done on a daily basis by marking to
market all open positions on the basis of the daily settlement price. The
contracts are finally settled on expiry of the Nifty index futures contract
when NSCCL marks the open positions of a CM to the closing price of the
underlying index and resulting profit/loss is settled in cash.

Trading and Settlement at NSE

NSE introduced for the first time in India, fully automated screen
based trading. It uses a modem, fully computerized trading system designed
to offer investors across the length and breadth of the country a safe and
easy way to invest. The NSE trading system called ‘National Exchange for
Automated Trading’ (NEAT)’ is a fully automated screen based trading
system, which adopts the principle of a order driven market.

Growth of Stock Exchanges

9
(Investment in Securities Market)

10
Functions of stock exchange
There 23 stock exchanges in India including Over The Counter
Exchange of India (OTCEI), Nation Stock Exchange (NSE) and inter-
Connected Stock Exchange (ICSE). All of them are regulated in terms of
Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992 and the rules
and regulations made there under. Some of the exchanges started of as
voluntary non- profit associations such as Bombay Stock Exchange (BSE).
And Indore Stock Exchange. The stock exchange at Chennai, Jaipur,
Hyderabad and Pune were incorporated as companies limited by guarantee.
The other stock exchanges are companies limited by shares and incorporated
under the Companies Act, 1956 or earlier acts.
The stock exchanges are managed by Board of Directors or Council or
Management consisting of elected brokers and representatives of
Government and Public appointed by SEBI. The Boards of stock exchange
are empowered to make and enforce rules, bye-laws and regulations with
jurisdiction over all its members.
Membership of stock exchange is generally given to person
financially sound and with adequate experience/ training in stock market.
Their enrolment as member is regulated and controlled by SEBI to whom
they have to pay an annual charge. A member of the stock exchange is called
‘broker’ who can transact on behalf of his clients as well as on his own
behalf. A non-member can deal in securities only through members. A
member can Act as a Badla Financier, Commission Broker, Dealer in Odd
lots, Government Securities, Jobber, Market Maker or Under writer. He can
also take the assistance of sub-broker whom he can appoint under the
procedure of registration.
We can briefly understand the following functions of stock exchange

1. The organized and regulated capital market motivates individual to

save and invest funds. The availability of safe and profitable source of
investment is an essential criteria to create propensity to save and
invest on the part of the earning public.
2. It provides for the investors a safe and productive channel for
investment of savings and secures the recurring benefit of return
thereon, as long as the savings are retained.
3. It provides liquidity to the savings of the investors, by developing a
secondary capital market, and thus makes even short term savings,
consistently available for long-term users

11
 4. It thus mobilizes savings of large number of individuals, families and
associations and make the same available for meeting the large capital
needs of organized industry, trade and business and for progress and
development of the country as a whole and its economy.

To discharge these functions, the organized capital market accepts a dual

responsibility

• To develop the market and to promote savings & Investment;

• To regulate the players in the market vis-à-vis the investor and to
enforce market discipline, through market regulators and registered
intermediaries. Such that the unorganized small man is able to deal
through these regulatory bodies and the intermediaries, and need not
necessarily has to come into direct contact with the ultimate seekers of
his savings.

Stock Exchange Trading Mechanism

The stock exchange is a key institution the issue and sale of various
types of securities. It is a pivot around which every activity of the capital
market revolves. In the absence of the stock exchange, the people with
saving would hardly invest in corporate securities for which there would be
no liquidity (buying and selling facility). Corporate investments from the
general public would have been thus lower.
Stock exchange thus represents the market place for buying and
selling of stock exchange and ensuring liquidity to them in the interest of the
investors. The stock exchange are virtually the nerve centre of the capital
market and reflect the health of the country’ economy as a whole.
Securities are traded in three different ways in stock exchanges ring,
namely- settlement basis, spot basis and cash basis.
Shares of companies which are not in the spot list are known as ‘cash’
shares or ‘B’ Category shares. They are traded on cash basis or delivery
basis and cannot be traded on settlement basis. The actual delivery of
securities and payment has to be made on or before the settlement date fixed
in the case of cash basis trading.
As far as spot trading is concerned the actual delivery of securities
must be made to the buying broker within 48 hours of the contract. It is
expected that the seller would be paid by the buyer immediately on delivery
of securities.
The securities whether the specified list or cash list can be traded on
spot basis or cash basis.

12
Types of securities
Securities traded in the stock exchange can be classified as under:
1. Listed cleared securities: the securities admitted for dealing on
stock exchange after complying with all the listing
requirements and played by the Board on the list of cleared
securities are called by this name.
2. Permitted securities: the securities listed on some of the
recognised stock exchange, when permitted to be traded by
those stock exchanges where they are not listed are called
permitted securities. Such permission is given if suitable
provisions exist in the regulations of the concerned stock
exchanges.

Types of Delivery
Types of delivery in the stock exchange are spot deliver, hand
delivery and special delivery.
The delivery is said to be spot delivery, if the delivery of and payment
for securities are to be made on the same day or the next day.
The delivery is said to be hand delivery, if the delivery and payment
are to be made on the delivery date fixed by the stock exchange authorities.
A special delivery is one where the delivery is to be made after the
delivery period fixed by the stock exchange authorities.

Margins
An advance payment of a portion of the value of a stock transaction.
The amount of credit a broker or lender extends to a customer for stock
purchase.

Margin Trading
Margin trading was introduced by SEBI to curb speculative dealings
in shares leading to volatility in the prices of stock exchanges.
“Initial margin” means the minimum amount, calculated as a
percentage of market value of the securities, calculated with respect to last
trading day’s closing price, to be maintained by client with the broker.
When the balance deposit in the client’s margin account falls below
the required maintenance margin, the broker shall promptly make margin
calls. However, no further exposure can be granted to the client on the basis
of any increase in the market value of the securities.
13
 The broker may also liquidate the securities if the client falls to meet
the margin calls made by the broker or fails to deposit the cheque on the day
following the day on which the margin call has been made or the cheque has
been dishonored.
The broker may also liquidate the securities in case the client’s
deposit in the margin account (after adjustment for mark to market losses)
falls to 30% or less of the latest market value of the securities, in the
interregnum between making of the margin call and receipt of payment from
the client.
The broker must disclose to the stock exchange details on gross
exposure including the name of the client, unique identification number,
name of the scrip and if the broker has borrowed funds for the purpose of
providing margin trading facilities, name of the lender and amount
borrowed, on or before 12 Noon on the following day.
Stock exchange discloses scrip wise gross outstanding in margin
accounts with all brokers to the market. Such disclosures regarding margin
trading done on any day shall be made available after the trading hours on
the following day through the website.
Thus, margin trading acts as a check on the tendency of clients to
manipulate markets by placing orders on brokers without having adequate
money or securities to backup the transaction.
Margin trading will also acts as curb on short selling and short buying.
The reduction in above tendencies on the part of clients reduces
volatility of prices on the stock exchange and provides stability to the
common investors.
Margin trading mechanism also ensures transparency in dealings in
securities and public exposure of the information regarding the backing
behind all major securities transactions.
In the Indian capital markets particularly excessive short selling and
market positioning have been rampant. Margin trading has acted as a
stabilizing force.

Book Closure and Record Date

Book closure is the periodic closure of the Register of Members and
Transfer Books of the company, to take a record of shareholders to
determine their entitlement to dividends or to bonus or right shares or any
other rights pertaining to shares. Record date is the date on which the
records of a company are closed for the purpose of determining the stock
holders to whom dividends, proxy’s rights etc. are to be sent.
14
 In accordance with Section 154 of the Companies Act, 1956 a
company may close the register of members for a maximum of 45 days in a
year and for not more than 30 days at any one time. Book closure becomes
necessary for purpose of paying dividend, making rights issue or bonus
issue. The listed company is required to give notice of book closure in a
news paper at least 7 days before the commencement of the book closure.
The members whose name appears in the register of members on the last
date of book closure are entitled to receive the benefits of dividend, right
shares or bonus shares as the case may be.

Trading of Partly Paid Shares and Debentures

Companies fix the last date for payment of allotment or call money in
case of partly paid shares or debentures and intimate this to all the stock
exchange wherein such shares or debentures are listed. Based on the date
fixed by company, the stock exchanges determine the settlement date upto
which transactions in the scrip will be deemed to be good for delivery. After
the said date, transactions in the securities take place only if they are paid up
to the extent money has been called up.
Trend Line

When the price of shares moves in a particular direction which

persists for a period of time, a price line is regarded as established. When the
movement is upward, the trend is called ‘BULLISH’ and when the
movement is downward it is called ‘BEARISH’. Bear market is a weak or
falling market characterized by the dominance of sellers. Whereas Bull
phase there will be a sharp rise in the daily turnover of key scrip and in a
BEAR phase the reverse will be the case.

Turnover and Outstanding Position

The net turnover and outstanding positions in various scrips show the
extent of BULLISH interest in them and are used along with trading volume
to judge the intensity of the phase whether BULLISH or BEARISH. In a
BULL phase there will be a share rise in the daily turnover of key scrip and
in a BEAR phase the reverse will be the case.

Market Making
Though there are 8,500 companies listed on the stock exchange in
India only a few of them are being actively traded in the market. Thus the
market sentiment was not representative of a wide range of industries or
companies, because mostly concentrated on a few scrips. This leads one to
15
conclude that mere listing of securities does not provide liquidity to scrips.
A process known as market making was clearly needed to build up liquidity.
The market maker by offering a two way quote not only increases the supply
of scrips but also triggers of demand in the scrips. SEBI has taken the view
that market making will go a long way in reducing the bane of concentration
an thus eliminating the influence of the unbalanced Sensitive Index.
In the case of OTCEI every company seeking listing should appoint
two market makers. The sponsor has to be compulsorily a market maker for
3 years and arranged for at least one more market maker for one year.
Market makers are merchant Bankers willing to make a secondary market in
securities through selection and specialization. They Act as dealer cum
stockiest and display bid and other price without charging any commission
or brokerage.
Their profit margin is spread between bid and offer prices. A
voluntary market maker can be appointed for a period of 6 months. The
minimum market depth for market makers is 3 market lots of 100 shares
each. After the initial period the job of market marking can be assigned to
another member or dealer. In April 1993, SEBI issued guidelines for market
making to be introduced in the 4 Metropolitan Exchanges of Mumbai,
Kolkata, Chennai and Delhi.

Settlement System
Settlement is the process of netting of transactions and actual
delivery/receipt of securities and transfer deeds against receipts/ payment of
agreed amount. It is necessary to make a settlement to know the net effect of
a series of transaction during a given period.
Settlement date is the date specified for delivery of securities between
securities firms. For administrative convenience, a stock exchange divides
the year into a number of settlement periods so as to enable members to
settle their trades. All transactions executed during the settlement period are
settled at the end of the settlement period.
Settlement risk or principal risk is the risk that the seller of a security
or funds delivers its obligation but does not receive payment or that the
buyer of a security or funds makes payment but does not rece3ive delivery.
In this event, the full principal value of the securities or funds transferred is
at risk.

16
 LEGAL FRAME
WORK

ecurities Contracts (Regulation) Act, 1956

It provides for direct and indirect control of virtually all aspects of
securities trading and the running of stock exchanges and aims to
prevent undesirable transactions in securities. It gives Central
Government regulatory jurisdiction over (a) stock exchanges through a
process of recognition and continued supervisions, (b) contracts in
securities, and (c) listing of securities on stock exchange. As a condition
of recognition, a stock exchange complies with conditions prescribed by
Central Government. Organized trading activity in securities takes place
on a specified recognised stock exchange. The stock exchange
determines their own listing regulations which have to conform to the
minimum listing criteria set out in the Rules.

Objectives of Securities Contracts (Regulation) Act, 1956

The preamble to the Act Reads as under:
“An Act to prevent undesirable transactions in securities by regulating the
business of dealing therein, by providing for certain other matters connected
therewith.”
The object of enacting the Securities Contracts (Regulation) Act, 1956 was
stated in the Bill, as follows;
The provide for regulation of stock exchanges and of transactions in
securities dealt in on them with a view to preventing undesirable
speculations in them and to regulate the buying and selling of securities
outside the limits of stock exchange, through the licensing of securities’
dealers.”
To sum up, the various objectives of enacting the Act are as follows;
• To provide for the regulation of stock exchanges.
17
 • To provide for the regulation of transactions in securities.
• To prevent undesirable speculations in securities.
• To regulate the buying and selling of securities outside the limits of
stock exchanges.
• To provide for ancillary matters, e.g., promoting healthy stock
market

Meaning of ‘stock exchange’ [Section 2(j)]

‘Stock exchange’ means-
(a)any body of individuals, whether incorporated or not,
constituted before corporatisation and demutualization under section
4A and 4B; or
(b) a body corporate incorporated under the Companies Act, whether
under a scheme of corporatisation and demutualization or otherwise,
for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities. In the ordinary sense, the term
‘stock exchange’ denotes a place where stocks, shares and other
securities are bought and sold; in other words, a stock exchange is
any organization or a group of persons which constitutes, maintains
or provides a market place or facilities for bringing together
purchasers and sellers of securities, and includes the market place
and facilities maintained by such an exchange [Black’s Law
Dictionary, 5th edition]

Meaning of ‘Recognised Stock Exchange’ [Section s(f)]

‘Recognised stock exchange’ means a stock exchange which is
for the time being recognized by the Central Government under
section 4. As is evident, the expressions ‘stock exchange’ and
‘recognised stock exchange’ cannot be used synonymously or
interchangeably. A stock exchange becomes a recognized stock
exchange on its being granted a recognitions by the Central
Government under section 4 and thereupon, all the provisions of
the Act, rules, regulations notifications etc. made under the Act
become applicable to such a stock exchange.

18
 Recognition of stock exchange (Section3 and 4)
The power to recognize the stock exchanges vests with the SEBI. The
provision relating to recognition of stock exchange may be explained as
follows.

1. Application to SEBI

Any stock exchange, which is desirous of being recognised, shall make an

application to the SEBI.

2. Requisites of an application
(a) Prescribed particulars. Every application shall contain such
particulars as may be prescribed. The application shall comply with the
procedural requirements as stipulated under rules 3, 4 and 5 of Securities
Contracts (Regulation) Rules, 1957. as per these rules-
(i)The application shall be made in ‘Form A’ appended to the Rules.
(ii)The fees for making the application shall be Rs.500.
(b) Bye laws. The application shall be accompanied by 4 copies of the
bye-laws of the stock exchange. The bye-laws shall contain matters relating
to the regulation and control of contracts.
(C) Rules. The application shall be accompanied by 4 copies of the
rules of the stock exchange. The rules shall contain the matters relating to
the constitution and management of stock exchange. In case the stock
exchange is an incorporated body, the expression ‘rules’ shall also include
the memorandum and articles of stock exchange. In particular, the rules shall
specify the following matters;
(i) Governing body. The governing body of such stock exchange, its
constitution and powers of management and the manner in which its
business is to be transacted.
(ii) Office bearers. The powers and duties of the office bearers of the stock
exchange.
(iii) Members. The admission into the stock exchange of various classes of
members, the qualifications for membership, and the exclusion, suspension,
expulsion and re- admission of members.
(iv) Admission of ‘Firm’ as a member. The procedure for the registration
of partnerships, as members of the stock exchange in cases where the rules
provide for such membership, and the nomination and appointment of
authorized representatives and clerks.
19
3. Grant of recognition to stock exchange (section 4)
(a) Inquiry and obtaining further information. The SEBI shall
make such inquiry as may be necessary in this behalf. It may require the
stock exchange to furnish such further information as it may require.
(b) Principles of natural justice to be observed. No application for
the grant of recognition shall be refused unless an opportunity of being heard
has been given to the stock exchange. The reasons for such refusal shall be
communicated to the stock exchange in writing.
(c) Recognition subject to satisfaction of SEBI. The SEBI may
grant recognition to the stock exchange if it is satisfied in respect of the
following matters;
(i)That the rules and bye-laws of the stock exchange are in conformity with
such conditions as may be prescribed with a view to ensure fair dealing and
to protect investors.
(ii)That the stock exchange is willing to comply with any other conditions
(including conditions as to the number of members) which the SEBI may
impose for the purpose of carrying out the objects of this Act. However, the
SEBI shall impose such conditions only after consulting the governing body
of stock exchange.
While imposing such conditions, the SEBI shall give due regard to the area
served by the stock exchange, its standing and the nature of the securities
dealt with by it.
(iii) That it would be in the interest of the trade and also in the public interest
to grant recognition to the stock exchange.
(d) Recognition subject to conditions. While granting the
recognition to a stock exchange, the SEBI may impose such conditions as it
may deem fit. Such conditions may relate to –
(i) The qualifications for membership of Stock exchange:
(ii) The manner in which contracts shall be entered into and enforced as
between members:
(iii) The appointment of representatives of the SEBI (nit exceeding three) on
the stock exchanges:
(iv) The maintenance of accounts of members and their audit by a chartered
accountant.
(e) Restriction on alteration of rules. No rules of a recognised stock
exchange shall be amended except with the approval of the SEBI
4. Publication in Gazette
Every grant of recognition to a stock exchange shall be published in the
Gazette of India and also in the Official Gazette of the State in which the

20
principal office of the stock exchange is situated. The recognition shall
become effective from the date of its publication in the Gazette of India.

Withdrawal of recognition of a stock exchange

(Section 5)

Section 5 empowers the SEBI to withdraw the recognition granted to

a stock exchange. The procedure for withdrawal of recognition is as follows:
(a) If, considering the interest of the trade or the public interest, the
SEBI is of the opinion that the recognition granted to a stock exchange
should be withdrawn, it shall serve a written notice on the governing body of
the stock exchange .
(b) The notice shall specify the reasons for the proposed withdrawal
of recognition.
(c) The SEBI shall give and opportunity of being heard to the
governing body of the stock exchange.
(d) If the SEBI is satisfied that the recognition should be withdrawn, it
may, by notification in the Official Gazette, withdraw the recognition
granted to the stock exchange.
(e) No withdrawal of recognition shall affect the validity of any
contract entered into or made before the date of the notification. In respect of
any contract which is outstanding as on the date of notification, the SEBI
may, after consultation with the stock exchange, make such provision as it
deems fit.

Power of CG/SEBI – Calling periodical returns of

directing inquiries (Sections 6 and 7)

Section 6 has been enacted with a view to enabling SEBI to ascertain

and satisfy itself as to whether the activities of the recognised stock
exchange and their members are in confirmations with the provisions of the
Act, rules, bye-laws etc. and the take corrective action if these are found
otherwise. These provisions are explained as under:
1. Furnishing of periodical returns
Every recognised stock exchange shall furnish to the SEBI such
periodical returns relating to its affairs as may be prescribed.

21
2. Furnishing of annual reports
Every recognised stock exchange shall furnish to the SEBI with a
copy of the annual report, and such annual report shall contain such
particulars as may be prescribed (Section7).
3. Furnishing information or explanation
SEBI has the power to call upon a recognised stock exchange or and
member thereof to furnish in writing such information of explanation
relating to the affairs of the stock exchange or of the member in relation to
the stock exchange as SEBI may require. SEBI can call the information or
explanation provided it is satisfied that it is in the interest of trade or public
interest to do so.
4. Maintenance of books of account etc.
Every recognised stock exchange and every member thereof shall
maintain such books of account and other documents as the SEBI may
prescribe. For this purpose, the SEBI shall consult the stock exchange
concerned and give due consideration to the interest of the trade and public
interest.
Preservation of books etc. Such books of account and other
documents shall be preserved for such periods, not exceeding 5 years, as the
SEBI may prescribe.
Inspection. Such books of account and other documents may be
inspected by SEBI at all reasonable times. No notice of inspection is
required to be given to the stock exchange. Also, SEBI is not required to
disclose the reasons or purpose of such inspection.
5. Inquiry into the affairs of stock exchange of any member
SEBI has the power to appoint one or more persons to make an
inquiry in the prescribed manner. The report of the result of such inquiry
shall be submitted to SEBI within such time as may be specified in the
order. The inquiry may be made in relation to-
(a)The affairs of the governing body of a stock exchange: or
(b)The affairs of any of the members of the stock exchange

Also, SEBI is empowered to direct the governing body of the stock

exchange to make the inquiry into the affairs of any of the members of the
stock exchange and submit its report to SEBI.
6. Action by SEBI as a result on inquiry
SEBI is empowered to take an appropriate action as a result of
inquiry. It may direct the governing body of the stock exchange to take such
disciplinary action as may be directed by SEBI. Such directions may include
imposition of fine or expulsion of the member of suspension of membership
22
or any other penalty of a like nature. On such directions of SEBI, the
governing body shall give affect to the directions of SEBI, notwithstanding
anything contained in the rules or bye laws of the stock exchange. The
governing body shall not reverse or modify any action taken in pursuance of
such direction, without the prior approval of SEBI. However, SEBI shall
have the power to modify or withdraw its directions, either of its own
motion or on the representation of the member concerned (Rule 11 of
Securities Contracts (Regulation) Rules, 1957).
7. Production of books and furnishing of information of inquiry
Where an inquiry has been undertaken in relation to the affairs of a
recognised stock exchange of the affairs of any of its members, the
following persons shall be bound to produce all such books of account, and
other documents in his custody or power relating thereto as may be matter of
such inquiry and also to furnish any such statement or information relating
thereto as may be required of him:
(a) Every director, manager, secretary or other officer of such stock
exchange .
(b) Every member of such stock exchange.
(c) If the member of the stock exchange is a firm, every partner,
manager, secretary or other officer of the firm.
.

Power of SEBI to issue direction (Section 12A)

The power of SEBI to issue directions to the stock exchange is explained as

follows:
1. Conditions for issue of directions by SEBI
SEBI may issue the direction if, after making an inquiry, it is satisfied
that issue of directions is necessary-
(a) In the interest of investors, or orderly development of securities
market: or
(b) To prevent the affairs of any recognised stock exchange, or,
clearing corporation, being conducted in a manner detrimental to the
interests of investors or securities market: or

2. Directions to whom?
The directions can be given to-
(a) Any stock exchange or clearing corporation or any person or class
or persons associated with the securities market: or

23
 (b) Any company whose securities are listed or proposed to be listed
in a recognised stock exchange as may be appropriate in the interests or
investors in securities and the securities market

Power of SEBI to supersede governing body of a

recognised stock exchange (Section 11)

Section 11 empowers the SEBI to supersede the governing body of a

recognised stock exchange. These provisions are explained as follows:
1. Conditions for making order of supersession
An order of supersesion shall require the fulfillment of all the
following conditions:
(a) The SEBI must form an opinion that the governing body of the
stock exchange should be superseded.
(b) The SEBI shall serve on the governing body a written notice that it
is considering the suppression of the governing body.
(c) The SEBI shall specify the reasons in the notice given to the
governing body.
(d) The SEBI shall give an opportunity of being heard to the
governing body
(e) The SEBI shall issue a notification in the official Gazette that the
governing body of the stock exchange has been superseded.
2. Effects of supersession
On the publication of the notification in the official gazette, the
following consequences shall follow:
(a) Cessation of governing body. The members of the governing
body shall cease to hold their offices. The cessation shall be effective as
from the date of publication of order of supersession in the Official Gazette.
(b) Appointment of officers in place of governing body. The SEBI
may also appoint any person or persons to exercise all the powers and
perform all the duties of the governing body. Where the SEBI appoints more
than one person, it may appoint one of such persons to be the chairman and
another to be the vice-chairman of the governing body. The person (SEBI)
appointed by the SEBI shall be entitled to exercise all the powers and
perform all the duties of the governing body which has been superseded.
(c) Vesting of property in the nominees of SEBI. The person(SEBI)
appointed by the SEBI may specify the property of the stock exchange,
which is necessary for the purpose of enabling him/them to carry on the

24
business of the stock exchange. All such property shall vest in him/them as
from the date of order made by such person (SEBI) in this behalf. In other
words, the property of the stock exchange does not automatically vest in the
person (SEBI) appointed by words, the property of the stock exchange does
not automatically vest in the person (SEBI) appointed by the SEBI. Only
such of the property of the stock exchange shall vest in the person(SEBI)
appointed by the SEBI which has been specified in the order made by such
person(SEBI) for the purpose of enabling him/them to carry on the business
of the stock exchange.
(d) Tenure of office of persons appointed. The persons (SEBI)
appointed by the SEBI shall hold office for such period as may be specified
in the notification. The SEBI may vary such period by issuing a fresh
notification.
3. Power of the SEBI to reconstitute the governing body
The SEBI may call upon the re-constitution of the governing body at
any time before the determination of the period of office of any person
(SEBI) appointed by the s.
4. Effects of re-constitution
(a) Upon re-constitution, all the property of the recognised stock
exchange shall vest in the governing body so re-constitution. Where any
property was vested in the person (SEBI) appointed by the SEBI such
property shall re-vest in the governing body so re-constituted.
(b) Until the governing body is so re-constituted, the person (SEBI)
appointed by the SEBI shall continue to exercise and perform their powers
and duties.

Power of SEBI to suspend business of recognised stock

exchange (Section 12)

Section 12 empowers the SEBI to make order directing a recognised

stock exchange to suspend its business. The powers of the SEBI in this
regard are explained as under:
1. Conditions for making the order of suspension
An order of suspension shall require the fulfillment of all the following
conditions:
(a) The SEBI must form an opinion that some emergency has arisen
and for the purpose of meeting the emergency, it is expedient to suspend the
business of the stock exchange .

25
 (b) The SEBI shall issue a notification in the Official Gazette that the
business of the stock exchange has been suspended.
(c) The SEBI shall specify the reason in the notification published in
the Official Gazette.
(d) The suspension of such business shall be subject to such
conditions as may be specified in the notification.
(e) The suspension of business shall be for such period, not exceeding
7 days, as may be specified in the notification.
(f)The SEBI may extend the period of suspension by issuing a fresh
notification in the Official Gazette. The extension may be ordered if-
(i) The SEBI forms an opinion that such extension is required in the interest
of trade or public interest: and
(ii) The SEBI has given an opportunity of being heard to the governing body
of the stock exchange .

Power of SEBI to prohibit contracts in certain cases

(Section 16)

Section 16 empowers the SEBI to declare that any contract for the sale
of purchase of a security shall not be entered except with the permission of
the SEBI. These provisions are explained as follows:
Conditions for making the prohibition order
(a) The SEBI must form an opinion that undesirable speculation in
securities is being carried out in relation to certain securities in a certain
State or are.
(b) The SEBI is satisfied that it is necessary to prevent such
undesirable speculation in securities.
(c) The SEBI issues a notification in the official Gazette specifying
such State/area and the securities. It shall also declare that no person in such
State/area shall enter into any contract for the sale or purchase of such
securities.
(d) All contracts entered into after the date of the notification, for sale
or purchase of the specified securities in these specified States/areas shall be
illegal, except in the following cases:
(i) A contract entered into with the permission of the SEBI
(ii)A contract entered into in the manner specified in the notification.

26
Power of recognized stock exchanges to make bye-laws
(Section 9)

A recognised stock exchange has the power to make the bye-laws

from time to time. The bye- laws may provide for regulation and control of
the contracts
1. Requisites for making the bye- laws
(a) Previous Publication of the bye-laws. The bye-laws shall be
subject to such conditions in regard to previous publication as may be
prescribed. However, if in any case, the SEBI is satisfied that in the interest
of the trade or in the public interest any bye-laws should by made
immediately, it may, by order in writing, dispense with the condition of
previous publication.
(b) Prior approval of SEBI. A recognised stock exchange shall make
the bye-laws only after obtaining the previous approval of SEBI.
(c) Publication in Official Gazette. The bye-laws, when approved by
the SEBI, shall be published in the Gazette of India and also in the Official
Gazette of the State in which the principal office of the recognised stock
exchange is situated.
(d) Effective date of bye-laws. The bye-laws shall have effect only
from the date of its publication in the Gazette on India.
2. Scope of bye-laws
The bye-laws may provide for the regulation and control of the
contracts. Without prejudice to the generality of the foregoing power, such
bye-laws may provide for-
(a) The opening and closing of markets and the regulation of the hours
of trade.
(b) A clearing house for the periodical settlement of contracts and
differences there under, the delivery of and payment for securities, the
passing on of delivery orders and the regulation and maintenance of such
clearing house.
(c) The submission to the SEBI by the clearing house as soon as may
by after each periodical settlement of all or any of the following particulars
as the SEBI may, from time to time, require, namely:
(i) The total number of each category of security carried over from one
settlement period to another
(ii) The total number of each category of security, contracts in respect of
which have been squared up during the course of each settlement period.

27
(iii) The total number of each category of security actually delivered at each
clearing:
(d) The publication by the clearing house of all or any of the
particulars submitted to the SEBI under clause © subject to the directions, if
any, issued by the SEBI in this behalf:
(e) The regulation or prohibition of blank transfers:
(f) The number and classes of contracts in respect of which
settlements shall be made of differences paid through the clearing house.
(g) The regulation or prohibition of budlas or carry-over facilities:
(h) The fixing, altering or postponing of days for settlements:
(i) The determination and declaration of market rates, including the
opening, closing, highest and lowest rates for securities:
(j) The terms, conditions and incidents of contracts, including the
prescription of margin requirements, if any, and conditions relation thereto,
and the forms of contracts in writing.
(k) The regulation of the entering into, making, performance,
recession and termination of contracts, including contracts between members
of between a member and his constituent or between a member and a person
who is not a member, and the consequences of default or insolvency on the
part of a seller or buyer or intermediary, the consequences of a breach or
omission by a seller or buyer, and the responsibility of members who are not
parties to such contracts.
(l) The regulation of taravani business including the placing of
limitations thereon:
(m) The listing of securities on the stock exchange, the inclusion of
any security for the purpose of dealings and the suspension or withdrawal of
any such securities, and the suspension or prohibition of trading in any
specified securities:
(n) The method and procedure for the settlement of claims or disputes,
including settlement by arbitration:
(o) The levy and recovery of fees. And penalties:
(p) The regulation of the course of business between parties to
contracts in any capacity:
(q) The fixing of a scale of brokerage and other charges:
® The making comparing settling and closing of bargains:
(s) The emergencies in trade which may arise, whether as a result of
pool or syndicated operations or cornering or otherwise, and the exercise of
powers in such emergencies including the power to fix maximum and
minimum prices for securities:
(t) The regulation of dealings by members for their own account:
28
 (u) The separation of the functions of jobbers and brokers;
(v) The limitation on the volume of trade done by any individual
member in exceptional circumstances:
(w)The obligation of members to supply such information or
explanation and to produce such documents relating to the business as the
governing body may require:
3. Special provisions applicable to specified bye-laws
The recognised stock exchange is empowered to specify the following
conditions in its bye-laws:
(a) The bye-laws may specify the bye-laws the contravention of which
shall make a contract void under sub-section (1) of section 14.
(b) The bye-laws may provide that the contravention of any of the
bye-laws shall render the member concerned liable to one or more of the
following punishments:
• Fine
• Expulsion from membership
• Suspension from membership for a specified period
• Any other penalty of a like nature not involving the
payment of money.

Contracts in notified areas illegal in certain

circumstances (Section 13)

The provisions of section 13 are explained as under:

1. Contracts in notified areas to be illegal in certain cases
The SEBI is empowered to notify any State or States or area for the
purpose of this section and thereupon every contract in securities in such
State or States or area shall be illegal unless it is entered into-
(a) Between the members of a recognised stock exchange or
recognised stock exchanges; or
(b) Through or with a member of a recognised stock exchange.
2. Conditions for issuing a notification under section 13
(a) While notifying any State or States or area, the SEBI shall have
due regard to the nature or volume of transactions in securities in such State
or States or area.
29
 (b) The notification shall be issued only if the SEBI is satisfied, that is
necessary to issue such a notification.
3. Future conditions for entering into certain contracts
Any contract entered into between members of two or more
recognised stock exchange in the notified State or States or area, shall
(a) be subject to such terms and conditions as may be stipulated by the
respective stock exchange with prior approval of SEBI.
(b) require prior permission from the respective stock exchange if so
stipulated by the stock exchange with prior approval of SEBI .
4. Non- applicability of section 13
Nothing contained in section 13 shall apply to spot delivery contracts.

Contracts in notified areas to be void in certain

circumstances (section 14)

The provisions of section 14 are explained as under:

1. Contracts in contravention of specified bye-laws to be void in notified
areas
Any contract entered into in any State or area specified in the
notification under section 13 which is in contravention of any of the bye-
laws specified in that behalf under section 9(3)(a) shall be void-
(a) as respects the rights of any member of the recognised stock
exchange who has entered into such contract in contravention of any such
bye-law; and
(b) as respects the rights of any other person who has knowingly
participated in the transaction entailing such contravention.
2. Non- applicability of section 14
Section 14 shall not apply to spot delivery contracts.

Power of recognised stock exchange to make rules restricting

voting rights, etc. (Section 7A)

As per section 7A, a recognised stock exchange may make or amend

its rules;
1. Conditions for making or amending rules

30
 (a) Approval of SEBI required. The rules made or amended by a
recognised stock exchange shall require the approval of the SEBI. While
granting the approval, the SEBI may make such modifications therein as it
thinks fit.
(b) Publication in Gazette. No rules of a recognised stock exchange
made or amended shall have effect until they have been published by the
SEBI in the official Gazette.
2. Scope of the rules
The rules may provide for any of the following matters:
(a) Voting rights to members only. The restriction of voting rights to
members only in respect of any matter placed before the stock exchange at
any meeting.
(b) One member- one vote. The regulation of voting rights in respect
of any matter placed before the stock exchange at any meeting so that each
member may be entitled to have one vote only, irrespective of his share of
the paid- up equity capital of the stock exchange.
(c) Proxies prohibited. The restriction on the right of a member to
appoint another person as his proxy to attend and vote at a meeting of the
stock exchange.
(d) Other related matters. Such incidental, consequential and
supplementary matters as may be necessary to give effect to any of the
above matters.

Power of SEBI to make or amend bye-laws of recognised stock

exchange (Section 10)

Section 10 empowers SEBI to make or direct any SEBI to amend its

bye- laws. These provisions are given hereunder;
(a) A recognised stock exchange may make a request in writing to the
SEBI to make the bye- laws of the exchange or make an amendment in its
existing bye-laws. Also SEBI may suo motu consider the making or
amendment of the bye- laws.
(b) Before making the bye-laws or any amendment thereof, SEBI
shall consult the governing body of the stock exchange.
(c) If SEBI is satisfied that it is necessary or expedient so to do, it may
make the bye-laws for all or any of the matters specified in section 9 or
amend any existing bye- laws. SEBI shall record its reasons for making or
amending the bye- laws.

31
 (d) The bye- laws so made or amended shall be published in the
Gazette of India and also in the official Gazette of the State in which the
principal office of the recognised stock exchange is situated. The bye- laws
shall have effect only from the date of its publication in the Gazette of India.
(e) However, if in any case, the SEBI is satisfied that in the interest of
the trade or in the public interest any bye- laws should be made immediately,
it may, by order in writing specifying the reasons therefore, dispense with
the condition of previous publication.
(f) Where SEBI makes or amends the bye- laws of a stock exchange
on its own motion, the governing body may object to it within 2 moths of its
publication in the Gazette of India. It may apply to SEBI for revision thereof
SEBI may, after giving an opportunity of being heard to the governing body,
revise the bye-laws so made or amended. The revision shall have effect only
from the date of its publication in the Gazette of India.
(g) On the publication of bye- laws in the Gazette of India, the bye-
laws so made or amended shall have effect as if they had been made or
amended by the recognised stock exchange concerned.

Members not to Act as principals (Section16)

An investor cannot directly, by himself, trade (purchase and sell

securities) on a stock exchange. He can trade only through a member of a
stock exchange. Therefore, a member of a stock exchange acts as an
intermediary between the two investors i.e., he acts as an agent, since he
carries out the transactions on behalf of the investors.
As per section 15, no member of a recognised stock exchange shall
enter into any contract as a principal with any person other a member of a
recognised stock exchange, except in the following cases;
(a) Where the member of recognised stock exchange-
(i) Secures the consent of such other person in writing. And
(ii) Makes a disclosure in the note, memorandum or agreement of sale or
purchase that he is acting as principal.
(b) Where the member secures the consent of such other person
otherwise than in writing, he shall secure written confirmation by such
person of such consent within 3 days from the date of the contract.
(c) A member may, without obtaining any written consent of such
person, close out any outstanding contract entered into by such person in
accordance with the bye-laws of the stock exchange. However, the member

32
shall disclose in the note, memorandum or agreement of sale or purchase in
respect of such closing out that he is acting as a principal.
(d) Where the contract is spot delivery contract.

Power of a stock exchange to establish additional

trading floor (Section 13A)

According to section 13A of Securities Contracts (Regulation) Act,

1956, a stock exchange may establish additional trading floor with the prior
approval of the Securities and Exchange Board of India (SEBI) in
accordance with the terms and conditions stipulated by SEBI.
For the purposes of this section, ‘additional trading floor’ means a
trading ring or trading facility offered by a recognised stock exchange
outside its area of operation to enable the investors to buy and sell securities
through such trading floor under the regulatory framework of that stock
exchange.

Listing of securities (Sections 21 to 22F)

Section 73 of the Companies Act, 1956 requires that every company,

intending to offer shares or debentures to the public for subscription by issue
of a prospectus shall, before such issue, make an application to one or more
recognised stock exchange for permission for the shares or debentures
intending to be so offered to be dealt with in such stock exchanges.
The provisions in respect of listing of securities as contained in
section 21 to 22F of the Securities Contracts (Regulation) Act, 1956 are
explained as follows;
1. Conditions for listing (Section 21)
Where securities are listed on the application of any person in any
recognised stock exchange, such person shall comply with the conditions
of the listing agreement with that stock exchange.
2. Right of appeal against refusal to list securities (Section 22A)
(a) Where a recognised stock exchange refuses to list the securities of
a public company, it shall furnish the reason for such refusal to the company.
(b) The company may appeal to the Securities Appellate Tribunal
against refusal to list the securities, ‘Securities Appellate Tribunal’ means a

33
Securities Appellate Tribunal established under section 15K of the Securities
and Exchange Board of India Act, 1992.
(c) Time period for filling the appeal is as under:
(i)The appeal shall be filed within 15 days from the date on which; the
reasons for such refusal are furnished to it; or
(ii)Where the stock exchange has omitted or failed to dispose of the
application for listing of shares, the appeal shall be filed within 15 days from
the date of expiry of the time specified under section 73 of the Companies
Act, 1956 (As per section 73 of the Companies Act, specified time means 10
weeks from the closing of subscription list). However, such period may be
extended by such period, not exceeding 1 moth, as the Securities Appellate
Tribunal may allow, on sufficient cause being shown.
(d) The appeal filed before the Securities Appellate Tribunal shall be
dealt with by it as expeditiously as possible and Endeavour shall be made
by it to dispose of the appeal with 6 months from the date of receipt of the
appeal.
(e) The Securities Appellate Tribunal (SAT) may, after giving the
stock exchange, an opportunity of being heard-
(i) Vary or set aside the decision of the stock exchange; or
(ii) Where the stock exchange has omitted or failed to dispose of the
application within the specified time, grant or refuse the permission.
(f) The Securities Appellate Tribunal shall send a copy of every order
made by it to SEBI and parties to the appeal.
(g)Where the Securities Appellate Tribunal sets aside the decision of
the recognised stock exchange or grants the permission, the stock exchange
shall Act in conformity with the orders of the Securities Appellate Tribunal.
3.Appeal to Supreme Court (Section 22F)
(a) Appeal by whom and appeal to whom? Any person aggrieved
by any decision or order of the Securities Appellate Tribunal may file an
appeal with the Supreme Court.
(b) Time period for filling appeal. The appeal shall be; filed within
60 days of communication of order of the Securities Appellate Tribunal.
(c) Extension of time period. On sufficient cause being shown, the
Supreme Court may extend the period for filling appeal. However, such
extended period shall not exceed 60 days.
(d) Condition for filling appeal. The appeal can be filed only on a
question of law.
4. Procedure adopted by Securities Appellate Tribunal (Section 22B)
(a) The Securities Appellate Tribunal shall not be bound by the
procedure laid down by the Code of Civil Procedure, 1908,
34
 (b) It shall be guided by the principles of natural justice.
(c) It shall have powers to regulate its own procedure including the
places at which it shall have its sittings.
(d)Every proceeding before the Securities Appellate Tribunal shall be
deemed to be a judicial proceeding.
5. Powers of Securities Appellate Tribunal (Section 22B)
The Securities Appellate Tribunal shall have the same powers as are
vested in a civil court, namely-
(a) Summoning and enforcing the attendance of any person and
examining him on oath;
(b) Requiring the discovery and production of documents,
(c) Receiving evidence on affidavits;
(d) Issuing commissions for the examination of witnesses or
documents;
(e) Reviewing its decisions;
(f) Dismissing an application for default or deciding it ex parte;
(g) Setting aside any order of dismissal of any application for default
or any order passed by it ex parte;
(h) Any other matter which may be prescribed.
6. Other provisions
(a) Right to legal representation. The appellant may either appear in
person or authorize one or more chartered accountants or company
secretaries or cost accountants or legal practitioners or any of its officers to
present his or its case before the Securities Appellate Tribunal (Section
22C).
(b) Limitation. The provisions of the Limitation Act, 1963(36 of
1983) shall, as far as may be, apply to an appeal made to a Securities
Appellate Tribunal (Section 22D)
(c) Civil court not to have jurisdiction. No civil court shall have
jurisdiction to entertain any suit or proceeding in respect of any matter
which a Securities Appellate Tribunal is empowered by or under this Act to
determine and no injunction shall be granted by any court or other authority
in respect of any action taken or to be taken in pursuance of any power
conferred by or under this Act (Section 22E).

35
 Delisting of securities (Section 21A)*

The provisions relating to delisting of securities are explained in the

following paragraphs.

1. Grounds for delisting

A recognised stock exchange may delist the securities of a company on
any of the grounds prescribed under this Act.
2. Conditions for delisting
(a) The recognised stock exchange shall record the reasons for
delisting the securities of a company.
(b) The securities of a company shall not be delisted unless the
company concerned has been given a reasonable opportunity of being heard.
3. Appeal against order of delisting
(a) Appeal by whom? The appeal may be made by the listed company
or any aggrieved investor.
(b) Appeal to whom. The appeal shall be filed with Securities
Appellate Tribunal.
(c) Time limit. The appeal shall be filed within 15 days of date of the
decision of the recognised stock exchange delisting the securities.
(d) Extension. If appeal is not filed within the prescribed time of 15
days, the Securities Appellate Tribunal may condone the delay in filing the
appeal if sufficient cause is shown. However, the period of extension for
filing appeal shall not exceed 1 moth.
4. Procedure adopted by Securities Appellate Tribunal
(a) Issue of show cause notice. The Securities Appellate Tribunal
shall give an opportunity of being heard to the stock exchange.
(b) Disposal of appeal. The Securities Appellate Tribunal shall
dispose of the appeal within 6 moths.
(c) Order of Securities Appellate Tribunal. The Securities
Appellate Tribunal may set aside or vary or confirm the order of stock
exchange.
(d) Copies of order. Copies of order of the Securities Appellate
Tribunal shall be sent to parties to appeal.
(e) Duty of stock exchange. The stock exchange shall comply with
the order of the Securities Appellate Tribunal.

36
 SEBI Act, 1992
The SEBI Act, 1992 was enacted to empower SEBI with statutory powers
for (a) protecting the interests of investors in securities, (b) promoting the
development of the securities market, and (c) regulating the securities
market. Its regulatory jurisdiction extends over corporate in the issuance of
capital transfer of securities. It can conduct enquiries, audits and inspection
of all concerned and adjudicate offences under the Act. It has powers to
register and regulate all market intermediaries and also to penalize them in
case of violations of the provisions of the Act, Rules and Regulations made
there under. SEBI has full autonomy and authority to regulate and develop
an orderly securities market.
The objects of the SEBI Act are as follows;
(a) Protection of the interests of investors in securities.
(b)Promoting orderly and healthy growth of the securities market.
(c) Regulation of the securities market and other incidental matters
(d)Promoting the fair dealings by the issuer of securities and ensuring
a market place where they can raise funds at a relatively low cost.
(e) Regulating and developing a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a view to
making them more competitive and professional.
(f) Monitoring the activities of stock exchange, mutual funds and
merchant bankers etc.

37
 SECUTITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Before 1992, the three principal Acts, governing the securities market
were (a) the capital issues (Control) Act, 1947, which restricted issuer’s
access to the securities market and controlled the pricing of issues; (b) the
Companies Act, 1956, which sets out the code of conduct for the corporate
sector in relation to issue, allotment and transfer of securities, and
disclosures to be made in public issues; and (c) the Securities Contracts
(Regulation) Act, 1956, which provides for regulation of transactions in
securities through control over stock exchanges. The capital issues (Control)
Act, 1947 had its origin during the war in 1943 when the objective was to
channel resources to support the war effort. The Act was retained with some
modifications as a means of controlling the raising of capital by companies
and to ensure that national resources were channeled into proper lines, i.e.,
for desirable purposes to serve goals and priorities of the government, and to
protect the interests of investors. Under the Act, any firm wishing to issue
securities had to obtain approval from Central Government, which also
determined the amount, type and price of the issue.
Major part of the liberalization process was the repeal of the Capital
Issues (Control) Act, 1947 in May 1992. With this, Government’s control
over issue of capital, pricing of the issues, fixing of premium and rates of
interest on debentures etc. ceased. The office which administered the Act
was abolished and the market was allowed to allocate resources to
competing uses. The Government has set up the Securities and Exchange
Board of India (SEBI) in April, 1988. However to ensure effective
regulation of the market, SEBI Act, 1992 was enacted to empower SEBI
with statutory powers.

38
 (SEBI’s Building)

Management of SEBI (Section 4)

1. Constitution. The SEBI shall consist of the following members;
(a) A chairman to be appointed by the Central Government.
(b) Two members from amongst the officials of the Ministry of the
Central government dealing with finance and administration of the
Companies Act, 1956 to be nominated by the Central government.
(c) One member from amongst the officials of the Reserve Bank to be
nominated by the Reserve Bank.
(d) Five other members of whom at least three shall be whole time
members to be appointed by the Central Government.
2. Management. The general superintendence, direction and management of
the affairs of the SEBI shall vest in a Board of members, which may exercise
all powers and do all acts and things which amy be exercised or done by the
SEBI.
3. Chairman. Save as otherwise determined by regulations, the Chairman
shall also have powers of general superintendence and direction of the
affairs of the SEBI and may also exercise all powers and do all acts and
things which may be exercised or done by the SEBI.
4. Appointments. The chairman and the members shall be appointed by the
Central Government and the members shall be nominated by the Central
Government and Reserve Bank.
5. who shall be the members. The Chairman and the other members shall
be persons of ability, integrity and standing who have shown capacity in
dealing with problems relating to securities market or have special
knowledge or experience of law, fiancé, economics, accountancy,

39
administration or in any other discipline which, in the opinion of the Central
government shall be useful to the SEBI.

Functions of SEBI
SEBI has been obligated to protect the interest of the investors in securities
and to promote and development of, and to regulate the securities market by
such measures as it thinks fit. The measures referred to therein may provide
for;
(a) Regulating the business in stock exchanges and any other
securities markets;
(b)Registering and regulating and working of stock brokers, sub-
brokers, share transfer agents, bankers to an issue, trustees of trust
deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in
any manner;
(c) Registering and regulating the working of the depositories,
participants, custodians of securities, foreign institutional
investors, credit rating agencies and such other intermediaries as
SEBI may, be notification, specify in this behalf;
(d)Registering and regulating the working of venture capital funds
and collective investment schemes including mutual funds;
(e) Promoting and regulating self-regulatory organizations;
(f) Prohibiting fraudulent and unfair trade relating to securities
markets;
(g) Promoting investor’ education and training of intermediaries of
securities markets;
(h)Prohibiting insider trading in securities;
(i) Regulating substantial acquisition of shares and take-over of
companies;
(j) Calling for information from, undertaking inspection, conducting
inquiries and audits of the stock exchanges, mutual funds, other
persons associated with the securities market, intermediaries and
self-regulatory organizations in the securities market;
(k)Calling for information and record from any bank or any other
authority or board or corporation established or constituted by or
under any Central, State or Provincial Act in respect of any
transaction in securities which is under investigation or inquiry by
the board;

40
(l) Performing such functions and exercising according to Securities
Contracts (Regulation) Act, 1956, as may be delegated to it by the
Central Government;
(m) Levying fees or other charges for carrying out the purpose of
this section;
(n)Conducting research for the above purposes;
(o) Calling from or furnishing to any ;such agencies, as may be
specified by SEBI, such information as may be considered
necessary by it for the efficient discharge of its functions;
(p)Performing such other functions as my be prescribed

41
 BIBLIOGRAPHY

Books:
• Kotler Philip, “Retail Management”, Tata McGraw Hill,
Second print 2007,Pg 60-120.
• Bajaj Chetan , Srivastava V Nidhi & Tuli Rajnish, “Retail
Sector in India”,Oxford University Press, Third Impression
2005,Pg 118-185.
• Pradhan Swapna, “Present Retail Scenario”,Tata McGraw
Hill,Fourth Reprint 2007 Pg 19-48.
• Lamba A.J , “Retail in India”,Tata McGraw Hill , Second Print
2007 , Pg 60-120

Websites:
• www.surfindia.com/finance

• www.nseindia.com (Website of National Stock Exchange)

• www.bseindia.com (Website of Bombay Stock Exchange)

• www.retailnews.com

42