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Definition of securities and derivatives as per the Securities Contract  (Regulation) Act, 1956 



The Securities Contract (Regulation) Act, 1956


 


https://finosutra.blogspot.com/2020/04/what-is-forward-contract.html


The trading of derivatives is governed by the provisions contained in the Securities  Contracts (Regulation) Act‐1956, the Securities Exchange Board of India Act‐1992, the  rules  and  regulations  framed  there  under  and  other  rules  and  bye–laws  of  stock  exchanges




 Securities Contracts (Regulation) Act, 1956 


 The Act aims to prevent undesirable transactions in securities. It governs the trading of  securities in India. The term “securities” has been defined in the Section 2(h) of SCRA.  The term ‘Securities’ include:  

 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  

 Derivative 

 Units or any other instrument issued by any collective investment scheme to the  investors in such schemes  

 Security receipt as defined in clause (zg) of section 2 of the Securitisation and  Reconstruction of Financial Assets and Enforcement of Security Interest Act,  2002  

 Units or any other such instrument issued to the investors under any mutual  fund scheme (securities do not include any unit linked insurance policy or scrips  or any such instrument or unit, by whatever name called which provides a  combined benefit risk on the life of the persons and investment by such persons  and issued by an insurer refer to in clause (9) of section 2 of the Insurance Act,  1938 (4 of 1938))  
 Any certificate or instrument (by whatever name called), issued to an investor by  any issuer being a special purpose distinct entity which possesses any debt or  receivable, including mortgage debt, assigned to such entity, and acknowledging 


 Government securities  

 Such other instruments as may be declared by the Central Government to be  securities (including onshore rupee bonds issued by multilateral institutions like  the Asian Development Bank and the International Finance Corporation)  

 Rights or interests in securities  According to the act “Derivatives” is defined as:‐   

 A security derived from a debt instrument, share, loan whether secured or  unsecured, risk instrument or contract for differences or any other form of  security.  

 A  contract  which  derives  its  value  from  the  prices,  or  index  of  prices,  of  underlying securities.   

 Commodity derivatives, and   

 Such other instruments as may be declared by the Central Government to be  derivatives.   

 Section 18A provides that notwithstanding anything contained in any other law  for the time being in force, contracts in derivative shall be legal and valid if such  contracts are:  

o Traded on a recognized stock exchange  

o Settled  on  the  clearing  house  of  the  recognized  stock  exchange,  in  accordance with the rules and bye–laws of such stock exchanges.  


 Securities and Exchange Board of India Act, 1992  

SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India  (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 and  transfer of securities, in addition to all intermediaries and persons associated with  securities market.  SEBI has been obligated to perform the aforesaid functions by such  measures as it thinks fit. In particular, it has powers for: 

  Regulating the business in stock exchanges and any other securities markets.  

 Registering and regulating the working of stock brokers, sub–brokers etc.  

 Promoting and regulating self‐regulatory organizations.  

 Prohibiting fraudulent and unfair trade practices.  

 Calling for information from, undertaking inspection, conducting inquiries and  audits of the stock exchanges, mutual funds and other persons associated with  the securities market and intermediaries and self–regulatory organizations in the  securities market.  

 Performing  such  functions  and  exercising  according  to  Securities  Contracts  (Regulation) Act, 1956, as may be delegated to it by the Central Government.

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The analogy I have used might not be 100% correct but it’s easy to understand things with a simpler analogy.


That’s it for this post. Do check out my other posts to gain more knowledge about finance.
   


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