SCRA and SEBI Acts for Stock Market

I have come here to teach you What is the Stock Market,

As we have seen in some previous sessions, you have understood in previous models, as to What is a stock market?, What is a trading membership, How to use Software Tools all of these things.

So, you have knowledge of some things from it.

Now, it's the time to move ahead.

That we learnt all of these things, then what are its rules and regulations, we need to understand that.

So, today's topic is Legal Framework.

Inside Legal Framework, SCRA Act, and SEBI majorly. so i have already explained to you the importance of SEBi Act,

So, i have given some basic information already, Now today we will discuss some rules and regulations

So, let's proceed.. with today's topic.

What is a legal framework, now you have become a part of the market, but what are the important rules and regulations that I should know are the people?  What are the acts that are enacted here?

First is the SCRA Act, securities contract regulations Act, meaning regulations based upon SEBi acts.

Next is Depository therefore Depository Act,

After that is Income Tax,how that is incurred.

We will discuss all of these things, upon a legal framework.

So, first is the ScRA act, what should be there in this, it basically means an agreement or contract, meaning What is a contract is basically an agreement which is made  between any two individuals.

So, one would be brokers, trade members and it's clients.

So, if there is a contract between them.

So, how does it work?

Suppose, a client is buying and selling, then what is the proof that he has, that it is done by him.

And if it is done by a broker on his behalf, then how will the client know?

So, these are some of the things on it.

So, first what happens is Registration of Transactions.

Whenever you trade, there is always it's transaction, you might remember that in our previous lecture I told you about the order book, wherein you can see the transaction that you did in today's date, in the last month I did this much of trade, so like this I used to get the entire list of transaction.

Next, is Client Ledger meaning, How this works, for instance Supposingly I am and xyz broker company, like Zerodha or let's take angel, and I want to see that this is my client, and I want to know how much money he has with him, meaning how much ledger is available of that clients.

Is it plus or minus, so if the ledger went in minus, that means he must have taken some different higher position, I will have to make a phone call to him and tell him.

Second is, General Ledger, so suppose I am an angel broker, so I have। a total of 20 clients, so how much is the sum of ledger that we have, then I would have to maintain my bank account book, the other thing is contract note, meaning of there is a client who is regularly trading, then he should get the contract note on the regular basis, he should get the contract note, but along with that even I should be getting.

For verification of his margin, if it goes in minus, which is very much important, because of  all of that.

After this is copy of broker and client agreement, whenever you must have done any legal work, so you would know that there are always two copies that are created of any contract, one is given to Whom?, Broker, to whom we have gone, that this person came to me and provided the details and sign it and formed the contract, the other copy is with the clients, and it is important to have these copies with both of them.

So, these were some of the information of the ScRA Acts, which is very much important to know, if you are doing broking, or opening an account.

The main thing is contractor which is important to find, suppose that I went to broker to open my account,and didn't open it online, so if he wants to do any earnings, but he has hidden them, by continuously doing buy and sell, so how will I come to know about it?, with the help of contract note.

What is the proof that it is done by broker only, so it's important to have a contract note always.

Now, how it can be judged whether it's done by broker or client, whenever a broker places an order at the exchange it goes with a different unique code, when the client does by its own with its application or software, so his code is generated separately.

So, in this way it can be differentiated separately, ok!

Second, is SEBI, so I am telling you from the earliest lectures that main work of the SEBI is to maintain rules and Regulations, so it works as Watchdog of the entire market, to check if nobody is doing any fraudulent activities, or there is no illegal fraud happening, promote the securities of the market investment timely, so everything is maintained by it, and the main thing is that the interest of the investors is always in protection, no company makes a client loose all of his money, or the brokers do any fraud with them.

So, it's not like once SEBI enacted these acts, and it's done, but instead it is updated from time to time. Ok!

Next, is SEBI Prohibition of Insider Trading Regulations, So what is the meaning of this?

You must be finding the name heard somewhere or different.

Insider, meaning closed talks, which is not known to me, not even to other clients, but some bigger sharks know it, they are using out the benefits of that news wrongly.

I will give you an example, some time ago, a big news channel, and its anchor used to do kind of insider trading,  So, What he does is?

That he used to give suggestions to his viewers to buy his shares,

So, as he is already sitting in a big position, so he has a lot of people watching him, and would believe in him that he will know a lot of things, Ok!

So, he used to give suggestions, but three to 4 days before, in his account he used to buy a lot of it and keep it with him.

Now, I gave someone the suggestions to buy, meaning a lot of activities will be done, that is the demand will be created and people will come in. So what will happen to the prices, it will hike up tremendously, and thereafter this person used to sell all of his shares.

This is also an insider thing,

If I give you another example, suppose that, I have a big pharmaceutical company, I was about to have the medicine of corona, or my scientists  had already manufactured it, but people didn't know about it.

So, it was known only by the internal members or the management, so this news is positive for the public as well as for the company, why?

As the company will generate trust, and there will be increase in the coming of investors, different types of investors will income,  there will be increase in fundings, so people knew that it's stock price will be hiked up soon, so one of the person from the management used that information wrongly, before bringing out the news publicly, 10-20 days before he bought all the shares and kept it, and thereafter the news spreaded in the market circle, some people started thinking that the company has worked efficiently, so the company bill receive big orders now, and earn a lot of profit, so, the person from the management who bought watched on the prices as it was increasing, 10 percent, 20 percent, 40 percent, 50 percent, so slowly slowly he started off loading his shares,

So, he used the news in the wrong way.

If somebody you feel is doing such insider trading like this, then you should file a case against them.

Why, because he is doing the wrong thing.

Ok!

Why but?

For his own profit he is doing somebody else's loss,

So, SEBI has made it sure that if anybody is found doing such things under this act, he will be pushed in jail, and also have to pay fines,

So, this was SEBI Prohibition of Insider Trading Regulations.

Ok!

So, these are some of the things, and that is what I was explaining it to you, that the companies or the trustees or the promoters don't follow it wrongly, and if they come to a broker, it shouldn't be there that they mislead, because whatever things that the company wants to do ,they will have to inform it to SEBI.

As to this is our results and this is the medicine that we have made, and we are going to get orders, so it's equal for everyone.

So, this is the rules and regulations which the SEBI has made.

If you have any doubts or queries,then you can post that in the comment section, and in this way your questions will reach us, and your comment will reach the other learners, the result of which, it will help in creating discussion of queries and solutions.

So, don't forget to post your comment in the discussion box.