The Securities and Exchange Board of India, the body regulating the securities market in India, has framed a new law to prohibit fraudulent and unfair trade practices in the securities market. The highlights of the new law, which has repealed the old regulation, are:
- The term fraud has been broadened to include any act or omission aimed at inducing others to deal in securities or misinformation dissipated by an issuer of securities affecting the market price of the security.
- But representations made in good faith in regard to economic policy of the government, economic situation of the country or trends in the securities market would not be tantamount to fraud.
- The law prohibits transactions in the following
- Buying, selling or otherwise dealing in securities in a fraudulent manner;
- Using, in connection with the issue, purchase or sale of any listed security, any manipulative or deceptive device in contravention of the provisions of the Act, or any device, scheme or artifice with the intention to defraud;
- Engaging in any act, practice or course of business, in connection with any dealing in or issue of listed securities, which operates as fraud or deceit.
- The law prohibits fraudulent or unfair trade practices in
securities. The following dealings have been deemed to be
fraudulent or an unfair trade practice:
- Dealing in securities intended to inflate or depress the security price;
- Advancing money to induce a person to buy or deal in any security, intended either to secure minimum subscription or to inflate/depress its price;
- Dealing in stolen or counterfeit security;
- Misleading advertisements or news that influence the decision of investors or induce the sale or purchase of securities.
Contravention of the above provisions would attract penalties extending from cancellation/suspension of registration of intermediary, impounding and retaining the proceeds or securities, suspending trading in the security to prohibition from dealing in security.