Stocks of a company refer to a collection of shares. Shares represent fractional ownership of a public listed company. The ownership depends on the number of shares of that company that he or she holds.
A stock market or equity market is a platform for buyers and sellers of stocks that depict the ownership claims of a business. These may include securities listed on public stock exchanges and stocks that are traded privately.
A stock exchange or a securities exchange or a bourse, is a platform in which stock brokers and traders can buy and sell securities like stocks and bonds of a public listed company. Stock exchanges offer the facility of issuing and redeeming securities, and instruments including payment of income and dividends.
Securities traded on stock exchanges include stocks issued by listed companies, unit trusts, derivatives, bonds and pooled investment products. Stock exchanges also function as continuous auction markets with buyers and sellers making transactions in a centralized location like a floor of a stock exchange. Today, most stock exchanges utilize electronic trading platform which has replaced open outcry system.
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See Also: Foreign Exchange Market In India
The Securities and Exchange Board of India, SEBI, is the supreme body for the regulation of security market in India. SEBI was established in 1988. SEBI was given statutory powers in January 1992 through the SEBI Act, 1992. All stock exchanges in India are regulated by the Securities Exchange Board of India, SEBI.
SEBI is actively responsive to the needs of the following three groups, which constitute the stock market:
SEBI has three major executive functions:
i) Quasi - legislative
ii) Quasi - judicial
iii) Quasi - executive.
SEBI drafts in its legislative capacity, it investigates and enforces actions through its executive functions and passes rulings and orders in its judicial capacity.
There is a Securities Appellate Tribunal (SAT) consisting of three members which is headed by Justice J P Devadhar, of the Bombay High Court. Second appeal lies directly with the Supreme Court. SEBI has played a proactive part in streamlining disclosure requirements that is on par with international standards.
SEE ALSO: Securities Exchange Board of India
For efficient discharge of functions, SEBI is vested with the following set of powers:
The SEBI has mandated all companies wanting to go public by listing shares on a stock exchange to go through the following procedure:
All securities exchanges currently have a listing agreement that has several common and standard provisions. It is a contract that securities exchanges enter with issuers which governs the relationship amongst the issuer and the investor.
Section 3 of the Securities Contract (Regulation) Act, states that each stock exchange for the purpose of being recognized must submit an application to the Central Government. If the central government is satisfied, then it offers recognition, which is subject to further inquiry and conditions imposed as prescribed in the Act.
Each grant of recognition is published on the Official Gazette. The opportunity must be given to the applicant to present their matter in case their application is rejected. Any amendment must not be made without the knowledge of the Central Government.
A stock exchange is formed as a mutual organization. Trading rights and ownership are clubbed together. The drawback of this is that the organization would work towards the advantage of members and not investors. Due to these shortcomings, Government of India took the step of demutualization and corporatization of the stock exchanges.
Under Section 23 of the securities contracts regulation Act, which was enacted in 1956, various penalties and punishments have been prescribed. The imprisonment can be up to 10 years or a fine which may extend to twenty five Crore Rupees.
The penalties are as explained below:
·Penalty for failure to furnish information, return and so on
Any person relating to this act, if fails to furnish any information, document, books, returns or report to a recognized stock exchange or fails to maintain books of accounts.
Any person who is related to this act or by any laws of a recognized stock exchange, if fails to enter into an agreement with his clients.
If a stock broker, fails to redress the grievances within the specified time.
A registered stock broker, failing to segregate securities or money of clients or client or utilizes the money of a client for personal use or for any other client.
A company, failing to comply with provisions of listing conditions or delisting conditions or commits a breach.
If a Company dematerializes securities more than the issued securities of a company, delivers securities that are not listed and has no trading license issued by a stock exchange, then that Company would be liable to pay a penalty in excess of Rs 5 Lakhs which may extend to Rs 5 Crores.
If a recognized stock exchange fails or neglects to furnish periodical returns to SEBI or fails to amend its rules or bye-laws directed by SEBI or fails to comply with directions issued by SEBI, such a recognized stock exchange would be liable to pay a penalty in excess of Rs 5 lakhs which may extend up to Rs 25 Crores.
If anyone offends any provision of SCR Act, the rules or bylaws or the regulations of the recognized stock exchanges or directions issued by SEBI for which no separate penalty has been mentioned, they shall be liable to pay a penalty in excess of Rs 1 Lakh and may extend up to Rs 1 Crore.
Under Section 23 - I, SEBI shall appoint an officer of the rank of a division chief and above, to be the adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity to put his views across.
Any person feeling dissatisfied by the decision of the recognized stock exchange or adjudicating officer or any order of SEBI, can appeal to Securities Appellate Tribunal (SAT). SAT shall close the matter within 6 months.
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