Securities Contracts - Definition, What is Securities Contracts, Advantages of Securities Contracts, and Latest News - ClearTax (2024)

Introduction

The Securities Contracts (Regulation) Act, was enacted in the year 1956. It is also referred to as the SCRA and is one of the first few rules and regulations or legislations made in the Indian capital markets.

The SCRA regulates the contracts executed in the Indian securities markets and stock exchanges. Therefore, all those securities that are defined by the Securities and Exchange Board of India (SEBI) have to necessarily follow the terms and conditions specified under the securities contract or the SCRA.

Definition of Securities

This definition of securities is utilised for all purposes of the Securities and Exchange Board of India (SEBI) Act, and several rules and regulations set out as per the SEBI Act. The Companies Act defines securities to carry the same meaning as defined under the SCRA, and it includes hybrids as well.

Hybrids are securities that have the characteristics of more than one security, including derivates. A major example of hybrids can be convertible debentures. These have the characteristics of both stocks and debentures.

The SCRA includes shares, stocks, bonds, scrips, debentures, debenture stocks, or any other marketable security of a listed company.

Contracts

The SCRA defines ‘contracts’ as a means to an agreement pertaining to the sale or purchase of securities. Contracts are of three types, and they are as follows:

i) Spot contract: These are the contracts that provide for the real delivery of assets or securities in exchange for payments on the same day of the contract being executed or on a future date.

ii) Ready delivery contract: These are the contracts that are to be executed immediately or within a specified timeframe.

iii) Forward contracts: These are the contracts under which the parties involved would agree to execute the contract on a specified date in future.