A ROADMAP TO SECURITIES COMPLIANCES

Overview of Securities Law and Compliances

A financial instrument that is capable of being traded in the stock market, is a security, and the laws governing and regulating the transactions relating to those securities, are labeled as Securities Law. Section 2(h) of the Securities Contract (Regulation) Act, 1956, lays down a list of financial instruments which are to be dealt as Securities. They are – shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of any incorporated company or body corporate.

The Government of India has enacted various legislations to regulate the securities transaction with the objective of safeguarding the interests of the investors in the securities market. These major statutes of which the body corporates having their securities listed on a recognized stock exchange are as follows:-

• Securities Contract (Regulation) Act, 1956 – This Act was enacted in 1956 and was one of the first regulations governing the capital market. The SCRA governs contracts entered into in Indian securities markets and stock exchanges. As a result, all securities must follow the terms and conditions specified in the securities contract or the SCRA.
• Securities and Exchange Board of India Act, 1992 – This Act was enacted on January 30, 1992, which established Securities and Exchange Board of India as a statutory body in the year 1992. This Act lays down the powers, objectives, functions and the organizational structure of SEBI.
• Depositories Act, 1996 – This Act was enacted on 8^th October, 1996, with the purpose of dematerializing of physical share certificates, which means converting the physical share certificates into electronic forms. A depository is responsible for holding shares of the shareholders in an electronic and fungible form, with depository as a registered owner, and the shareholder as beneficial owner.
• Forward Contracts (Regulation) Act, 1952 – The Act regulates and governs Forward Contracts. A forward contract is an agreement between the buyer and seller to buy or sell an underlying asset at a price they both agree on at a future date. The forward price is the name given to this pricing.

The Overseer of Securities Transactions – SEBI

The SEBI Act, 1992 established SEBI (Securities and Exchange Board of India) as a statutory body on April 12, 1992. The board’s headquarters are located in Mumbai. SEBI contributes to the regulation of the Indian capital market by protecting investors’ interests and establishing rules and regulations for capital market development. It contributes to the creation of a favorable environment for effective mobilization of funds among market players and investors. To meet the needs of the securities market, SEBI establishes rules and regulations, a policy framework, and infrastructure.

Need for ensuring Securities Compliances

• Formulating and executing security compliance policies and procedures will facilitate the organization to proceed in alignment with its legal responsibilities.
• Maintaining balance between the interests of both – the investors as well as companies whose securities are listed on a recognized stock exchange.
• Security compliance driven processes, will help management to retain sensitive information in the hands of the authorized officers of the organization.
• Improved threat detection and response reduced exposure to vulnerabilities. 
•  Assures regulatory authorities in the organization’s product or services. 

Some Major Compliances under Securities Law

• Listing Obligation and Disclosure Requirement – The SEBI (LODR) Regulations, 2015 came into existence with an aim of consolidating the compliance requirements for companies whose securities are listed on a recognised stock exchange. Any company which intends to offer its shares for subscription to the public must be listed on a recognized stock exchange and must comply with the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.
• Issue of Capital and Disclosure Requirement – The SEBI (ICDR) Regulations, 2009 were enacted to regulate the issuance of securities by a company in the form of Initial Public Offer, Further Public Offer, Rights Issue, Preferential Allotment, Qualified Institutional Placement, Bonus Issue. A company willing to raise funds through any of the above mentioned routes, must ensure compliance with the ICDR regulations.
• Prohibition of Insider Trading – SEBI has made regulations prohibiting insider trading in the form of the Prohibition of Insider Trading Regulations, 1992. Insider trading of securities by directors and key managerial personnel shall be administered by the SEBI Regulations. Insider Trading, essentially means dealing in the shares of the company, while in possession of an Unpublished Price Sensitive Information (UPSI).
• Substantial Acquisition of shares and takeovers – The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 lays down a regulatory framework for acquisition and takeover of shares of any listed company. These regulations aim to safeguard the interest of the shareholders and the minority shareholders of the acquired company. The acquirer has to abide by the compliancy requirements as laid down in the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, and provide exit opportunity to dissenting shareholders, by making an open offer as per the provisions of these regulations.

Inference

In light of the increasingly strict legal requirements and growing code of conduct for businesses whose securities are listed in recognised stock exchanges, compliance with SEBI regulations is essential. The upholding of a balance between the capital requirements of businesses and the mobilisation of idle currency by the general public is ensured by such compliances.  While businesses continue to focus on improving their core business operations, it is important to keep up with shifting legal requirements.

How we can help?

Our team can play an important role in facilitating securities compliance service. Here are some of the ways-

• By obtaining registrations, certifications, and permits from the appropriate governmental or regulatory agencies.
• By drafting authority letters, power of attorneys, applications as required.
• By detecting non compliances as well as the implementation of corrective actions.
• By ensuring submission of monthly, quarterly & annual returns & reports.
• Maintenance of statutory records, registers, formats, etc.