Securities Contracts Regulation Act

The Securities Contracts (Regulation) Act, 1956 (SCRA) is one of the oldest pieces of securities legislation in India, predating the establishment of SEBI. It was enacted to prevent undesirable transactions in securities and to regulate the business of dealing in securities. Despite its age, it remains a cornerstone of the legal framework for Indian capital markets.

SCRA's primary contributions include the recognition and regulation of stock exchanges. Under Section 4 of SCRA, stock exchanges must obtain recognition from the Central Government (now administered through SEBI) to operate. This recognition can be granted subject to conditions relating to rules and bye-laws. Recognised stock exchanges include NSE, BSE, and commodity exchanges such as MCX and NCDEX.

SCRA defines the term securities broadly to include shares, scrips, stocks, bonds, debentures, and derivative contracts. The scope of what constitutes a security has been expanded over time through amendments and SEBI notifications. Section 18A of SCRA, inserted in 1999, specifically declared derivatives including financial futures and options as securities and recognised their legal validity, providing the statutory foundation for the derivatives market in India.

The Act also deals with listing agreements — the contract between a company and a stock exchange governing the terms under which the company's securities are traded on that exchange. While SEBI's LODR Regulations have now largely codified listing obligations, the SCRA provides the underlying statutory authority.

Violations of SCRA — including operating an unrecognised stock exchange, dealing in securities without proper licensing, or manipulating securities prices — attract penalties and criminal liability. SEBI exercises delegated powers under SCRA to regulate the securities market, making SCRA and the SEBI Act the twin pillars of India's securities regulation framework.