SECURITIES LAW:

SEBI:

Securities and Exchange Board of India (SEBI) is a statutory regulatory organization formed by the
Government of India to oversee the Indian securities market and safeguard the welfare of investors in
securities. It also governs the operation of the stock market, mutual funds, and other
financial institutions.

SEBI OBJECTIVES

• Investor protection

SEBI's primary objective is to protect investors from unfair and fraudulent practices. This includes ensuring
that investors have access to accurate and timely information.

• Regulation

SEBI regulates the securities market and the capital market in India. This includes developing and
enforcing rules and regulations.

• Market development

SEBI works to develop the securities market by introducing reforms and initiatives. This includes improving
disclosure standards, simplifying issue procedures, and introducing prudential norms.

• Fair practices

SEBI promotes fair practices and a high standard of integrity in the securities market. This includes
prohibiting insider trading, price rigging, and other malpractices.

• Financial education

SEBI FUNCTIONS

SEBI monitors and regulates market activities

SEBI ensures compliance with regulations

SEBI takes corrective action when there are violations

SEBI drafts regulations and statutes

SEBI passes rulings and orders

SEBI conducts investigations

SEBI imposes penalties

A stock exchange is a centralised location where the shares of publicly traded companies are bought
and sold.

SCRA

SEBI provides financial education to investors.

The Securities Contracts (Regulation) Act, 1956 (SCRA) is a law in India that regulates the stock
exchange and securities contracts. It was passed by the Parliament of India to prevent undesirable
security transactions.

What does the SCRA do?

Regulates the stock exchange and securities contracts

Prevents undesirable security transactions

Sets rules for listing securities on stock exchanges

Allows for the delisting of securities under certain circumstances

Gives stock exchanges the power to make bye-laws for transactions on the exchange

Allows the government to override the governing body of a stock exchange

ILLEGAL AND VOID CONTRACT AT SCRA:

1. Illegal Contracts Under SCRA

An illegal contract in the context of the SCRA refers to contracts that involve activities or transactions that
are prohibited by law. Such contracts are considered unlawful and may attract penalties or criminal
charges. Some examples of illegal contracts under the SCRA include:

• Manipulative Practices: Contracts made with the intent to manipulate or corner the market,
such as those that artificially inflate or deflate the price of securities.

• Insider Trading: Trading in securities based on non-public material information is prohibited, and
any contracts based on such actions would be considered illegal.

• Fraudulent Practices: Contracts that are made with fraudulent intentions or to deceive investors
in any way.

Contracts involving such illegal activities are void and cannot be enforced by law. The parties involved may
face severe penalties or legal action.
2. Void Contracts Under SCRA

A void contract is one that is considered invalid from the beginning. It has no legal effect and cannot be
enforced by any party. Under the SCRA, a contract may be declared void in the following
circumstances:

• Non-compliance with Regulations: If a contract involves securities that are not listed on a
recognized stock exchange or if the transaction does not adhere to the rules and regulations laid
down by SEBI or the stock exchanges.

• Unlawful Practices: A contract based on unlawful or unethical trading practices, like price rigging
or manipulation, is void.

• Lack of Consent: If one or both parties to the contract did not have the capacity to contract or if
there was coercion or fraud involved in the formation of the contract.

• Violation of Listing Requirements: If the securities involved in the contract are not listed or
traded in accordance with the rules of the stock exchange or do not meet the criteria set by SEBI,
the contract could be considered void.

Examples of Void Contracts Under SCRA

• Contracts in Securities Not Recognized by SEBI: If a contract involves the trading of securities
that are not listed or authorized under SEBI or are not part of a recognized exchange.

• Off-Market Transactions: Any transaction that occurs off the exchange and is not legally
compliant or reported to the concerned authority may be void.

IMPORATANCE OF SCRA:

• Protecting investors: The SCRA prevents harmful practices and protects investors by making the
market fair and transparent.

• Regulating securities contracts: The SCRA regulates agreements for buying and selling securities,
including shares, stocks, bonds, and debentures.

• Recognizing stock exchanges: The SCRA sets rules for recognizing and operating stock
exchanges. The Central Government can withdraw recognition if it's in the public interest.

• Licensing brokers and sub-brokers: The SCRA requires brokers and sub-brokers to have a
license.
 • Controlling stock exchanges: The SCRA gives the government control over the functions and
affairs of stock exchanges.

• Preventing undesirable transactions: The SCRA prevents undesirable transactions in securities.

FUNCTIONS OF NEW ISSUE MARKET

The main function of a new issue market is to facilitate transfer of resources from savers to the
users. The savers are individuals, commercial banks, insurance companies etc, The users are
public limited companies and the government.

Functions of new issue market is divided into three categories;

1. Organization

2. Underwriting

3. Distribution

Facilitating the Initial Public Offering (IPO)

• The NIM facilitates the Initial Public Offering (IPO) process, where a privately held company
offers its shares to the public for the first time. This process helps businesses access a wider pool
of investors and raise large sums of money to finance their operations and growth.

SEBI GUIDELINES UNDER PRIMARY MARKET:

The Securities and Exchange Board of India (SEBI) has laid down specific guidelines and regulations for
the primary market to ensure transparency, fairness, and protection of investor interests during the
issuance of securities. These guidelines apply to the process of Initial Public Offerings (IPOs), Follow-
on Public Offerings (FPOs), Rights Issues, and other forms of capital raising from the public.

Disclosure standards

• Companies must disclose all material facts and risk factors associated with their projects

• Credit rating agencies can monitor how funds raised through IPOs are used

Issue procedures

• Companies must file statements with SEBI and other securities agencies

• Companies must wait for their filings to be approved before offering securities for sale

IPO eligibility

• Companies must meet certain eligibility criteria, such as profitability and net worth
• Companies must refund IPO money if allotment criteria are not met.

10 MARK

1. PRIMARY FUNCTIONS OF STOCK EXCHANGE:

Liquidity

• Allows investors to buy and sell shares quickly and efficiently

• Helps investors convert their investments into cash without delay or price impact

• Gives investors confidence in their investments

Promoting Transparency

• Exchanges ensure that all trading activity is transparent. They require companies to disclose
material information to the public, including financial statements, annual reports, and other
disclosures. This helps investors make informed decisions based on reliable data.

Price Discovery

• A stock exchange is crucial in determining the market price of securities. The price of a security
is established through the forces of demand and supply in the market. The exchange provides a
transparent system where prices reflect the real-time market sentiment, economic conditions,
and investor interest.

Providing a Platform for Trading

• The stock exchange serves as a centralized marketplace where buyers and sellers can transact in
securities. It provides a safe, regulated, and structured environment for trading, ensuring that
trades are conducted in an orderly and fair manner.

Facilitating Capital Formation

• Stock exchanges play a vital role in capital formation by providing companies with access to
equity capital. When companies list their securities on an exchange, they can raise funds by
issuing shares to the public. This helps businesses grow and expand, benefiting the economy.

Offering Investment Opportunities

• Stock exchanges provide investors with a variety of investment opportunities. Investors

Ensuring Fairness and Equal Access

• A stock exchange ensures that all market participants, whether individual or institutional, have
equal access to information and trading opportunities. This helps maintain a fair and efficient
market where no participant has an unfair advantage.
 Investor Protection

• Stock exchanges work to protect investor interests by ensuring that market rules are adhered to,
providing dispute resolution mechanisms, and facilitating access to accurate and reliable
information. Regulatory bodies like SEBI (Securities and Exchange Board of India) oversee
exchanges to prevent fraud and market manipulation.

Promoting Economic Growth

• By providing a platform for companies to raise funds and allowing investors to access capital
markets, stock exchanges contribute to economic growth. They enable businesses to invest in
innovation, infrastructure, and expansion, which in turn drives employment, production, and
overall economic development.

2. SEBI GUIDELINES

SEBI guidelines, which stand for Securities and Exchange Board of India guidelines, are a set of rules and
regulations established by the SEBI to govern the Indian securities market, ensuring transparency,
investor protection, and fair trading practices across stock exchanges, mutual funds, and other
financial intermediaries involved in the market; key areas covered by SEBI guidelines include listing
obligations for companies, insider trading regulations, substantial acquisition of shares (takeovers),
disclosure requirements for public issues, and regulations for market intermediaries like brokers and
investment advisors.

Key aspects of SEBI guidelines:

Corporate Governance:

SEBI mandates specific corporate governance practices for listed companies, including board composition
with independent directors, disclosure of related party transactions, and regular financial reporting to
maintain high standards of accountability.

Public Issue Regulations:

Companies planning to raise capital through initial public offerings (IPOs) must adhere to strict disclosure
requirements, including detailed information about their financials, business operations, and risk
factors, to ensure investors are well-informed.
Insider Trading Prevention:

SEBI has strict regulations against insider trading, where individuals with privileged information about a
company use it for personal gain by buying or selling stocks before the information is publicly
available.

Listing Obligations:

Listed companies on stock exchanges are required to comply with specific disclosure norms regarding
financial results, material events, and corporate actions, ensuring timely and accurate information for
investors.

Takeover Regulations:

When a company intends to acquire a substantial stake in another listed company, SEBI guidelines
mandate mandatory disclosures and procedures to ensure fair treatment of existing shareholders.

Mutual Fund Regulations:

SEBI regulates the operations of mutual funds, including their investment strategies, fund management
practices, and disclosure requirements to protect investor interests.

Broker and Investment Advisor

Regulations:

SEBI sets standards for the conduct of stockbrokers and investment advisors, including client onboarding
procedures, suitability checks, and conflict of interest management.

Importance of SEBI Guidelines:

Investor Protection:

By enforcing transparency and disclosure norms, SEBI helps investors make informed decisions based on
accurate information, minimizing the risk of fraud or manipulation.

Market Stability:
SEBI guidelines contribute to a stable and orderly market by regulating key activities like trading practices,
margin requirements, and corporate governance.

Financial Development:

Well-defined regulations encourage greater participation in the capital markets by both domestic and
international investors, facilitating economic growth.