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Derivatives, Securities Tribunal bills tabled in Lok Sabha

Insurance bill

Finance Minister Yashwant Sinha today introduced in the Lok Sabha two separate bills -- the Securities Laws (Amendment Bill), 1999 and the Securities Laws (Second Amendment) Bill, 1999 -- to allow derivatives trading in the stock exchanges and setting up of the Securities Appellate Tribunal by transferring the appellate functions of the central government to the proposed body.

The Securities Laws (Amendment) Bill seeks the further amendment of the Securities Contracts (Regulation) Act 1956 and the Securities and Exchange Board of India (SEBI) Act 1992. The other bill seeks the further amendment of the Securities Contracts (Regulation) Act 1956, the SEBI Act and Depositories Act 1996.

Introducing the bills, Sinha said that the second amendment bill of the Securities Act proposed to transfer the appellate functions of the central government under three different acts to the Securities Appellate Tribunal.

He said that the objectives of these acts are to prevent undesirable transactions in securities and depositories by regulating the business of dealing and protecting investors interest. As per the bill, the term of office of the presiding officer of the Securities Appellate Tribunal will be five years.

The Securities Laws (Amendment) Bill, which seeks to allow derivatives trading on all stock exchanges, was more controversial as it was introduced in the 12th Lok Sabha and was reffered to the standing committee on finance.

In its report, the standing committee has suggested modifications including the collective investment scheme, which has been made part of the bill. The committee also noted that the stock exchanges' working has improved substantially and the bourses are now better equipped to undertake trading in derivatives in the sophisticated environment.

The committee further noted that most of the stock exchanges in the country have already been modernised. It would be prudent to allow trading in derivatives by such exchanges only.

As per the bill, the central government has been empowered to make rules for the collective investment scheme for the purpose of getting these units listed on any stock exchange.

The statement of objects and reasons of the bills states that the market and credit risks have been reduced by requirement of adequate capitalisation, margining and establishment of clearing corporation in stock exchanges. Systemic improvments have been made by introduction of screen-based trading and depositories to allow book entry transfer of securities.

Derivatives trading is expected to strengthen and deepen the capital market, the statement said.

The Reserve Bank of India has also been delegated powers under the bill along with SEBI.

SEBI will would frame regulations with trading to the scheme of the collective investment schemes. With the introduction of collective investment scheme, many companies, specially plantation companies, would be brought under the Act to provide adequate regulatory framework to allow an orderly development of this particular market, where millions of rupees have been invested by small and retail investors.

The definition of securities has also been changed on the recommendation of the standing committee to include within its ambit the derivatives and the units or any other instruments issued by any collective investment scheme to the investors in such schemes.

The standing committee has recommended that a definition of collective investment scheme be suitably worded in consonance with the definition recommended by the Dave Committee.

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