Definition of Stock Exchange

By | May 5, 2018

Under the Indian Securities Contracts (Regulation) Act of 1956, an exchange is defined as any body of individuals, whether incorporated or not, constituted to assist, regulating or controlling the business of buying, selling or dealing in securities. The Securities Contracts Regulation Act stipulates that the Government of India must recognize a stock exchange. The Government recognizes the twenty-three exchanges that are operating in India.

There are other statutes applicable to stock exchanges, The Companies Act 1956, Income Tax Act, 1961 and Foreign Exchange Management Act.

Until 1988, the exchanges were more or less self-regulatory with broad overall supervision by the Ministry of Finance in the Government of India. The High Powered Committee on Stock Exchange Reforms in its Report in 1985 highlighted that some of the exchanges were not discharging their self-regulatory role well. As a result, malpractices had crept into trading, and they were affecting the interests of the investors adversely. Consequent to the Report, Government of India issued several guidelines to stock exchanges. In 1988, the Securities and Exchange Board of India (SEBI) was constituted to ensure that stock exchanges discharge their self-regulatory role well. To prevent malpractices in trading in shares and to protect the rights of investors, SEBI has assumed the monitoring function envisaged for it and requires the brokers to be registered and the stock exchanges to report on their activities.