2. SECURITIES

2. SECURITIES
What is meant by ‘Securities’?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act
(SCRA), 1956, includes instruments such as shares, bonds, scrips, stocks or
other marketable securities of similar nature in or of any incorporate
company or body corporate, government securities, derivatives of securities,
units of collective investment scheme, interest and rights in securities,
security receipt or any other instruments so declared by the Central
Government.
What is the function of Securities Market?
Securities Markets is a place where buyers and sellers of securities can enter
into transactions to purchase and sell shares, bonds, debentures etc.
Further, it performs an important role of enabling corporates, entrepreneurs
to raise resources for their companies and business ventures through public
issues. Transfer of resources from those having idle resources (investors) to
others who have a need for them (corporates) is most efficiently achieved
through the securities market. Stated formally, securities markets provide
channels for reallocation of savings to investments and entrepreneurship.
Savings are linked to investments by a variety of intermediaries, through a
range of financial products, called ‘Securities’.
Which are the securities one can invest in?
§ Shares
§ Government Securities
§ Derivative products
§ Units of Mutual Funds etc., are some of the securities investors in the
securities market can invest in.
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2.1 Regulator
Why does Securities Market need Regulators?
The absence of conditions of perfect competition in the securities market
makes the role of the Regulator extremely important. The regulator ensures
that the market participants behave in a desired manner so that securities
market continues to be a major source of finance for corporate and
government and the interest of investors are protected.
Who regulates the Securities Market?
The responsibility for regulating the securities market is shared by
Department of Economic Affairs (DEA), Department of Company Affairs
(DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of
India (SEBI).
What is SEBI and what is its role?
The Securities and Exchange Board of India (SEBI) is the regulatory
authority in India established under Section 3 of SEBI 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
corporates 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 practic es
§ Calling for information from, undertaking inspection, conducting
inquiries and audits of the stock exchanges, intermediaries, self –
regulatory organizations, mutual funds and other persons associated
with the securities market.
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2.2 Participants
Who are the participants in the Securities Market?
The securities market essentially has three categories of participants,
namely, the issuers of securities, investors in securities and the
intermediaries, such as merchant bankers, brokers etc. While the corporates
and government raise resources from the securities market to meet their
obligations, it is households that invest their savings in the securities
market.
Is it necessary to transact through an intermediary?
It is advisable to conduct transactions through an intermediary. For example
you need to transact through a trading member of a stock exchange if you
intend to buy or sell any security on stock exchanges. You need to maintain
an account with a depository if you intend to hold securities in demat form.
You need to deposit money with a banker to an issue if you are subscribing
to public issues. You get guidance if you are transacting through an
intermediary. Chose a SEBI registered intermediary, as he is accountable for
its activities. The list of registered intermediaries is available with
exchanges, industry associations etc.
What are the segments of Securities Market?
The securities market has two interdependent segments: the primary (new
issues) market and the secondary market. The primary market provides the
channel for sale of new securities while the secondary market deals in
securities previously issued.