Government of India Volume I: Analysis and Recommendations

Table of Recommendations 13.8 Listing of securities
With respect to listing of securities the Commission recommends:
FOUNDATIONS OF CONTRACTS AND PROPERTY
1. Ensuring that exchanges do not arbitrarily refuse to list securities;
2. That persons in control of the issuer of securities do not discriminate against persons who have bought securities
through the exchange;
3. That in the event the securities are de-listed or cease to be traded, persons who have bought the securities
from the exchange should be able to sell the securities at a fair price; and
4. That in the event the issuer changes fundamentally through a takeover, persons who do not agree to the
change are able to sell the securities at a fair price.
Exchanges play a central role in the organised trading of securities. Table 13.8 provides
the recommendations of the Commission with respect to the actions of exchanges
in the course of listing and trading.
13.7. Market abuse
The Commission noted that the underlying principles of securities market requires integrity
of the information produced by markets and fairness of the terms in trading in
securities. These can be distorted through various ways which can be classified into the
following categories:
1. Market Manipulation: Organised financial trading produces a stream of information, about
prices, spreads or turnover. This information has important ramifications for the economy. Millions
of individuals and firms make economic decisions as a consequences of the trading value
of the securities. Any action which generates an artificial modification in these numerical values
has an adverse impact on the market. Hence the law and regulatory processes that protect
the integrity of information flow in the market. The regulator either on its own or through the
Infrastructure Institution must establish rules, and exercise supervision, to identify and penalise
attempts by market participants to induce artificial values of prices, spreads or turnover.
2. Insider trading: Concerns itself with trading based on non-public information that is availed
through some special relationships and is considered an unfair advantage in such markets.
The Commission proposes that the law governing these concerns should be clubbed
together under a general legal principle of market abuse. Market abuse can be classified
into:
1. abuse of information;
2. abuse of securities; and
3. securities market abuse.
Table of Recommendations 13.9 Types of market abuse
The law governing market abuse must cover the following circumstances:
1. Abuse of information: Occurs under three circumstances:
◮ When a person under a legal duty to disclose information does not do so or discloses false or deceptive
information;
◮ When any person uses information gained from sources which are not supposed to disclose information
for purposes of trading; and
◮ When any person circulates false or deceptive information with the objective of changing the price of
a security and then trading such security for profit.
Example: Insider trading, spreading false information.
2. Insider trading: Concerns itself with trading based on non-public information that is availed through some
special relationships and is considered an unfair advantage in such markets.
3. Securities market abuse: Occurs when a person, with the intention of making a financial gain, artificially
affects the price, liquidity, demand, supply or trading of securities or gives a false impression of the same.
This may be done by dealing in securities or employing manipulative, deceptive or artificial means.
128 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION