Important regulations in Indian Securities Market

The Indian securities market operates under a layered legal structure that begins with the Constitution‑mandated powers of the Parliament and ends with detailed SEBI circulars. At the top level, the Securities and Exchange Board of India (SEBI) Act, 1992 creates the regulator and defines its powers to protect investors and ensure market integrity.

Below the SEBI Act, specific statutes such as the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 2013 address contract‑level trading rules and corporate governance respectively. Complementary legislation – the Depositories Act, 1996, Insider Trading Regulations, Takeover Regulations and the Listing Obligations & Disclosure Requirements (LODR) – fill functional gaps.

For the NISM exam, candidates must be able to map each regulation to its primary objective, the entities it covers, and the typical compliance actions required from research analysts. Questions often combine two or more regulations in a single scenario, so a holistic view is critical.

The SEBI Act confers statutory powers to SEBI, enabling it to register market intermediaries, frame regulations and enforce penalties. Its core objective is to protect the interests of investors and to develop and regulate the securities market.

Key provisions include the power to issue directions to listed companies, to conduct inspections, and to levy securities transaction tax (STT) where applicable. SEBI may also intervene in cases of market manipulation, insider trading and fraudulent practices.

In the NISM exam, expect questions on SEBI’s jurisdiction (e.g., who can be regulated – stock exchanges, brokers, mutual funds) and on the consequences of non‑compliance such as monetary penalties or suspension of registration.

The SC(R) Act governs the trading of securities contracts on recognized stock exchanges. It defines what constitutes a ‘securities contract’, prescribes the process for listing, and sets the framework for derivatives trading.

Important clauses include the requirement for a contract to be in writing, the need for a clearing house, and the prohibition of contracts that are not covered under the Act. The Act also empowers SEBI to approve new contracts and to suspend trading in case of irregularities.

Exam questions often test the distinction between the SC(R) Act (contract‑level rules) and the SEBI Act (regulatory authority). Remember that the SC(R) Act is the statutory backbone for exchange‑based trading.

The Companies Act, 2013 introduced extensive corporate governance norms that directly affect listed securities. Sections 179‑185 deal with board composition, audit committees, and related‑party transactions, all of which have disclosure implications for research analysts.

Under Chapter XV, the Act mandates a minimum public shareholding of 25% for listed companies, aligning with SEBI’s listing requirements. It also prescribes the filing of annual returns, financial statements and corporate social responsibility (CSR) disclosures.

For NISM, focus on the overlap between the Companies Act and SEBI’s LODR – the same information may be required under both statutes, and failure to comply can trigger penalties from either regulator.

The Depositories Act enables the dematerialisation of securities, allowing investors to hold shares in electronic form. It establishes the legal framework for Depository Participants (DPs) such as NSDL and CDSL.

Key provisions include the requirement for every securities transaction to be recorded in a depository account, the rights of beneficial owners, and the process for pledge and hypothecation of securities.

In the exam, you may be asked about the role of a DP, the process of converting physical certificates to electronic form, or the consequences of a DP’s failure to maintain proper records.

These regulations prohibit the use of unpublished price‑sensitive information (UPSI) for trading or for influencing others to trade. They apply to insiders, their relatives, and anyone who receives UPSI in confidence.

Key duties include the mandatory filing of a ‘Form 13’ (insider trading declaration), maintaining a ‘trading window’ policy, and establishing an internal compliance officer. Violations attract severe penalties – up to ₹25 crore or 10% of the turnover, whichever is higher, and possible imprisonment.

Exam questions often present a scenario where an analyst receives a corporate earnings preview before public release. The correct answer will hinge on identifying the breach of the insider trading provisions and the required remedial action.

The Takeover Regulations prescribe the procedure when an entity acquires 25% or more of the voting rights of a listed company. They mandate a public open offer, disclosure of shareholding, and a fair price determination.

LODR 2022 consolidates earlier listing requirements and adds new obligations such as quarterly financial disclosures, corporate governance reporting, and ESG disclosures. Both sets of rules aim to enhance transparency for shareholders.

For the NISM exam, remember the 25% trigger for a mandatory open offer, the timeline for filing a ‘Form 20A’ under LODR, and the penalties for non‑disclosure (e.g., delisting, monetary fines).

SEBI (Mutual Funds) Regulations, 1996 (as amended) govern the creation, management and disclosure requirements of mutual fund schemes. They mandate a minimum net‑worth for Asset Management Companies (AMCs), a strict valuation methodology, and periodic reporting to investors.

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) were introduced via separate regulations in 2014 and 2015 respectively. These frameworks require a minimum asset size, a lock‑in period for investors, and regular distribution of income to unit holders.

Exam focus includes the minimum net‑worth requirement for AMCs (₹5 crore), the lock‑in period for REIT/InvIT units (typically 3 years), and the mandatory disclosure of portfolio composition on a quarterly basis.

Research analysts must embed regulatory compliance into every stage of their workflow – from data collection to report dissemination. The typical process includes: (i) verifying that all information sources are public or authorised, (ii) maintaining a compliance log for each report, (iii) obtaining pre‑clearance for any material that could be deemed price‑sensitive, and (iv) filing required disclosures with SEBI or the stock exchange.

SEBI’s Code of Conduct for Research Analysts (issued in 2020) mandates a clear separation between research and investment banking activities, a written policy on conflicts of interest, and periodic internal audits. Failure to comply can lead to penalties, suspension of the analyst’s registration, or even criminal prosecution.

Exam questions often present a multi‑step workflow and ask which step is mandatory under the Code of Conduct. Remember that pre‑clearance of material information and maintaining a conflict‑of‑interest register are non‑negotiable requirements.