| |
SCR Act amendment to pave way for derivatives trading
Sharad Mistry
MUMBAI, Dec 29: Even as the LC Gupta committee is grappling with dissent on the derivatives committee, officials at the Union law ministry are busy clearing the decks from the legal angle. Among the questions being looked at are the tax treatment of income from derivatives trading.As soon as SEBI formally clears derivatives trading, the law ministry plans to swing into action to amend the Securities Contracts (Regulation) Act, 1956, to include derivatives in the list of securities that can be traded on the stock exchanges. SEBI chairman DR Mehta is hopeful that derivatives trading will be a reality from April 1998. However, tax experts at the recently-held first seminar on derivatives said it was necessary that the government come out with uniform tax guidelines on treatment of profits/losses arising out of trading in derivative products.Currently, the SCR Act is silent on derivatives, which are not included in the list of securities that can be traded on Indian bourses. Accordingly, the stock exchanges
are barred from trading in these products. Also, there are no formalised tax treatment norms for treating profits/losses that a firm derives from trading in derivatives. The move for amending the SCR Act will, however, have to be made by SEBI, which currently awaits the LC Gupta committee report on the subject. The panel is expected to submit uniform bylaws for stock exchanges intending to take up trading in derivatives.Section 2(h)(i) of the SCR Act, 1956, outlines the list of securities that could be traded on the Indian bourses. These include shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in any incorporated company or other body corporate. Government securities were included in this list in 1992, when Section 2(h)(i) was amended with the introduction of the SEBI Act.Interestingly, section 2(d) of the SCR Act does define options as a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell securities in future,
and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call.However, the list of securities that could be traded on Indian bourses does not include trading in options. Accordingly, options trading continues to be banned on Indian bourses. While the SCR Act does not explicitly prohibit trading in derivative products (including options), the government has kept the window open for introducing them on Indian bourses. Section 2(h)(IIA) talks about ``such other instruments as may be declared by the Central Government to be securities.''Thus, trading in exotic derivatives could be a reality only on amendment of Section 2(h)(i) of the SCR Act, 1956.Further, even Section 2(j) of the SCR Act will have to be amended. It is this section which permits stock exchanges to assist, regulate and/or control the business of buying, selling or dealing in securities. The scope of the word securities, as said earlier, does not include derivatives. Lastly, before the SCR Act
is amended, it would also be vital for the law ministry to clarify its stand on the various complicated issues regarding the tax treatment of profits derived from trading in these exotic products.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
|
 |
