Securities to be dealt with in Stock Exchanges


Securities are money-raising financial instruments. The main purpose of the securities markets is to facilitate the transfer of capital from those who possess it to those who need it. The securities market aids in the movement of resources from those who have idle resources to those who require them for productive purposes. e.g., a stock, bond, options contract, or shares of a mutual fund, etc.[i]

As per Section 2 (81) ―securities means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 “Securities” include—

Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

  • derivative;
  • units or any other instruments issued by any collective investment scheme to the investors in such schemes;
  • security receipt as defined in clause (zg) under section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
  • units or any other such instrument issued to the investors under any mutual fund scheme. Securities however, shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938.
  • any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be

Types of Securities

There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities, which are a combination of debt and equity.

  1. Debt Securities: Debt securities, also known as fixed-income securities, are a representation of borrowed money that needs to be repaid, with terms defining the sum borrowed, the interest rate, and the maturity date. In other words, debt securities are financial instruments that can be traded between parties, such as bonds (such as government or municipal bonds) or certificates of deposit (CDs).

Based on a borrower’s credit history, track record, and solvency—the capacity to repay the loan in the future—the interest rate on a debt security is decided. A lender would need to charge a higher interest rate to make up for the increased risk by taking on the loan, therefore the greater the default risk of the borrower.

  • Equity Securities: Shareholders’ ownership interest in a company is represented by equity securities. To put it another way, becoming a shareholder of an organisation requires making an investment in its equity stock. Holders of equity securities are not entitled to a regular payment, but they can make capital gains by selling their stocks, which is how they vary from holders of debt securities. Another distinction is that equity securities give the holder ownership rights, making him a shareholder with a stake corresponding to the number of purchased shares. Only the interest that is left over after all obligations have been met by holders of debt security can the equity holders share in the case of bankruptcy for a business.
  • Derivate Securities: Financial instruments known as derivative securities have a value based on basic factors. Assets like stocks, bonds, currencies, interest rates, market indices, and goods are examples of variables. Utilizing derivatives is primarily done to weigh risks and reduce them. It is accomplished through providing protection from price fluctuations, fostering speculative environments, and gaining access to markets or assets that are difficult to access.
  • Hybrid Securities: As the name implies, a hybrid security is a kind of security that combines features of both debt and equity securities. Like bonds, they often make a greater interest payment promise at a set or variable rate until a specific future date. The frequency and timing of interest payments are not guaranteed, unlike with bonds. Even better, an investment may be cancelled at any time or converted into shares.

Preferred stocks, which allow the holder to receive dividends before holders of common stock, convertible bonds, which, depending on the contract’s provisions, can be converted into a predetermined number of equity stocks either during the bond’s life or at its maturity date.[ii]

The Mandate of Companies Act, 2013

The Companies Act, 2013 through Section 40 mandates that securities must be dealt with in Stock Exchanges.

Before making a public offering, a company must submit an application to one or more recognised stock exchanges in order to gain authorization for the securities to be traded on those exchanges.

The name or names of the stock exchange where the securities will be dealt with must be stated in a prospectus when it is stated that an application has been made.
All funds received from public applications for subscription to the securities must be kept in a separate bank account at a designated bank and cannot be used for anything other than (a) an adjustment against the allocation of securities when those securities have been approved for trading on the stock exchange or exchanges listed in the prospectus, or (b) the timely repayment of funds as required by the Securities and Exchange Board.

 Any clause that would ostensibly force or constrain a securities applicant to forego complying with this section’s requirements is invalid.

If the company fails to comply with the provisions of this section, the company will be fined not less than five lakh rupees but up to fifty lakh rupees, and each officer who is in default will be sentenced to up to one year in prison or a fine of not less than fifty thousand rupees but up to three lakh rupees, or both, depending on the severity of the offence.
Subject to any required criteria, a company may pay commission to any individual in connection with the subscription to its securities.

Overview of Stock Exchange

You can buy stocks, bonds, and other securities on a stock exchange. In a regulated setting designed to maximise efficiency and transparency, it offers a platform for businesses to sell stocks and for investors to exchange those stocks with one another.[iii]

According to the data given by Securities and Exchange Board of India, there are seven functional stock exchanges in India.

  1.  National Stock Exchange of India Ltd
  2. Bombay Stock Exchange Ltd
  3. Calcutta Stock Exchange Ltd
  4. Metropolitan Stock of India Ltd
  5. Multi-commodity Exchange of India Ltd
  6. National Commodity and Derivatives Exchange Ltd
  7. Indian Commodity Exchange Ltd

The leading stock exchange is National Stock Exchange of India Limited (NSE), which is owned by a number of domestic and international financial institutions, public and private businesses, and people. It deals with equity, equity derivatives, currency derivates (including Interest Rate Derivatives), Commodity Derivatives and Debt.

Bombay Stock Exchange and Metropolitan Stock Exchange of India Ltd also deals with the same kinds of securities. Multi-commodity Exchange of India Ltd and National Commodity and Derivatives Exchange Ltd only deal with commodity derivatives. [iv]

Issue of Securities is governed in the following manner: The Companies Act, the Securities Contract Regulation Act of 1956, the SEBI Act of 1992, and the Issue of Capital and Disclosure Requirements (Regulations), 2009 govern the issuance of securities to Public Companies that are listed entities or that wish to list their securities on the recognised stock exchange in India. All private company issues are handled by the Companies Act, and the Central Government, the Tribunal, or the Registrar of Companies, as appropriate, exercise administrative authority. The SEBI is given authority to regulate issues connected to the issuance and transfer of securities and the failure of listed companies or those that want to list their securities to pay dividends under Section 24 of the Act.

Powers and Procedure of Stock Exchange for Issuing Shares[v]

  • As per Rule 4 of Companies (Share Capital and Debenture) Rules, 2014 A business limited by shares is permitted to issue equity shares with varying dividend, voting, and other rights. An ordinary resolution approved by the shareholders’ general meeting authorises the issuance of shares. The issuance of equity shares of a company that are listed on a recognized stock exchange must receive the approval of the shareholders via postal ballot. (However, following the implementation of the Companies (Amendment) Act of 2017, any business that was previously required to be transacted by postal ballot may now be transacted at a general meeting by a company that is required to provide members with the option to vote electronically under Section 108).
  • Such a company must hold a board meeting to issue the notice of the general meeting for the issuance of equity shares with differential rights, and if the company is listed with any recognised stock exchange, it must notify that stock exchange within 30 minutes of the conclusion of the aforesaid board meeting of the decision made at the board meeting. Send copies of the notice and a copy of the general meeting’s proceedings to the stock market in the case of a listed company within 24 hours of the event. [Regulation 30 (6) of SEBI (Listing Obligations and Disclosure Requirements), 2015]
  • To give the necessary information in the event of the issuance of preference shares, a notice of general meeting should be issued along with it. The stock exchange must be informed of the date of the board meeting for a listed company at least two working days beforehand. (Regulation 29 of Listing Regulations).


[i] Understand the Basics of Securities Markets, available at: (last visited on November 15, 2022).

[ii]Types of Security, available at: (last visited on November 15, 2022).

[iii] What is stock exchange? Understanding the marketplace where shares are bought and sold

[iv]Details of Stock Exchanges, available at:

[v] Company Law Module 1 Paper 2, The Institute of Company Secretaries of India, available at: (last visited on November 15, 2022).

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