What were the reasons of passing the securities contract (Regulation) Act, 1956? State its main features.
Securities Contracts (Regulation) Act was passed in 1956 when government came to know about the ills of stock markets. This act was passed in order to regulate and control stock market operations in the wider interests of the financial markets, institutions and the public.
The main features of this Act are stated below:
- In order to have a unitary control, only one recognized stock exchange shall be there in one region.
- If dealers and brakes are outside the area of recognized stock exchange, they will be licensed.
- Only after consulting the governing bodies of these exchanges, the Central Government can make and amend bye-laws.
- Future dealings are not allowed because they are regarded as gambling contracts.
- Periodical returns regarding affairs must be submitted by a recognized stock exchange and it should provide necessary information required by the Government from time to time.
- Central Government by using its powers, can compel any public limited company to list its securities. On an appeal made by a company, it can vary or set aside the refusal of a stock exchange to list securities.
- It is a right of the Central Government to withdraw recognition to the governing body of exchange in situations that are abnormal.
- After getting approval of the Central Government, a recognized stock exchange can prepare its own bye-laws in order to control and regulate the contracts.
The bye-laws may regulate:
- Opening and closing of markets
- Establishment of clearing house
- Regulation of trading hours
- Fixing minimum and maximum prices for securities in emergencies.
- Through members, limitations on the volume of trading and on their open positions.
- Separation of jobbers’ and brokers’ functions and regulation of tarawanibusiness.
- Regulation of prohibition of blank transfer.(h) Regulation or prohibition of carry over or budla system.
- Listing of securities on the stock exchange.
Stock markets were regarded as gambling dens of the brokers because such markets suffered from many evils in the past. Government had no other choice but to pass this Act, because of several malpractices in the working .of these stock exchanges. Since 1956, stock exchanges have to work under the control of Central Government.
Recently, Government of India has established a high power body called Securities Exchange Board of India. It will provide necessary guidance in order to develop the securities markets healthy and orderly which will inculcate confidence among the investors and provide adequate or sufficient protection to them.