The Securities Contracts (Regulation) Act, 1956, commonly known as SCRA, is a crucial law that regulates the securities market in India. It was enacted to prevent malpractices and promote fair trading practices in the stock market.
However, there are certain exemptions under the SCRA, which means that the act does not apply to specific entities or transactions. In this article, we will discuss the exemptions under the SCRA and why they are necessary.
Firstly, the SCRA does not apply to government securities. Government securities refer to bonds issued by the central or state governments to raise funds. The main reason why government securities are exempted from the SCRA is that they are issued by a sovereign entity and are considered safe investments, reducing the need for additional regulation.
Secondly, the SCRA does not apply to transactions in units of mutual funds. Mutual funds pool funds from several investors and invest them in various securities. Since mutual funds are already regulated by the Securities and Exchange Board of India (SEBI), there is no need for additional regulation under the SCRA.
Thirdly, the SCRA does not apply to transactions in securities of a company not listed on a recognized stock exchange. A recognized stock exchange is an exchange that is approved by the government and meets specific criteria related to its operations, financials, and governance. Transactions in securities of a company that is not listed on a recognized stock exchange are typically private transactions, and the SCRA does not apply to them.
Lastly, the SCRA does not apply to transactions by and between its members or between members and their clients of recognized stock exchanges. These transactions are already regulated by the stock exchanges themselves, and additional regulation under the SCRA would be redundant.
In conclusion, the Securities Contracts (Regulation) Act, 1956, is a critical law that regulates the securities market in India. However, certain exemptions under the act are necessary to promote a fair and efficient market. The exemptions ensure that entities or transactions that are already subject to regulation by other authorities are not burdened with redundant regulation under the SCRA.