 bill no 162 of  2005 the securities contracts (regulation) amendment bill, 2005 a billfurther to amend the securities contracts (regulation) act, 1956be it enacted by parliament in the fifty-sixth year of the republic of india as follows:—short title1 this act may be called the securities contracts (regulation) amendment act,2005amendment of section 242 of 19562 (1) in section 2 of the securities contracts (regulation) act, 1956 (hereinafter referred to as the principal act),  in clause (h), after sub-clause (id), the following subclause shall be inserted, namely:—"(ie) any certificate or instrument (by whatever name called),—(a) issued, to an investor by  any special purpose distinct entity which possesses any financial asset representing debt or receivable by such entity, and, acknowledging the beneficial interest of such investor in such financial asset; and (b) which may, by general or special order, be specified as such by the securities and exchange board of india;"3  after section 17 of the principal act, the following section shall be inserted, namely:—insertion of new section 17a"17a (1) without prejudice to the provisions contained in this act or any other law for the time being in force, no securities of the nature referred to in sub-clause (ie)of clause (h) of section 2 shall be issued to any investor or trade on any recognised stock exchange unless such securities have been approved by the securities and exchange board of indiaapproval of securities and exchange board of india for securities referred to in sub-clause (ie)of clause (h) of section 2(2) every special purpose distinct entity referred to in sub-clause (ie) of clause(h) of section 2 shall—(a) make an application, for specifying any certificate or instrument under sub-clause (ie) of clause (h) of section 2, as secrurites, to the securities and exchange board of india, in such form and manner as may be specified by regulations;(b) file along with an application made under clause (a) the draft of the certificate or instrument which such entity proposes to issue to the investor as securities of the nature referred to in sub-clause (ie) of clause (h) of section 2(3) the securities and exchange board of india may, to protect the interest of investors in the securities of the nature referred to in sub-clause (ie) of clause (h) of section 2, specify by regulations,—(i) the contents of the certificate or instrument to be filed under clause (b)of sub-section (2) and to be issued as securities of the nature referred to in subclause (ie) of clause (h) of section 2, to the investors;(ii) the manner in which such contents shall be disclosed in the certificate or instrument to be issued as securities of the nature referred to in sub-clause (ie) of clause (h) of section 2"amendment of section 314 in section 31of the principal act, for sub-section (2), the following sub-section shall be substituted, namely:—"(2) in particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:—(a) the manner in which at least fifty-one per cent of equity share capital of a recognised stock exchange is held within twelve months from the date of publication of the order under sub-section (7) of section 4b by the public other than the shareholders having trading rights under sub-section (8) of that section;(b) the form and manner in which an application shall be made under clause (a) of sub-section (2) of section 17a;(c) the contents of the certificate or instrument under clause (i) of subsection (3) of section 17a;(d) the manner in which such contents shall be disclosed in the certificate or instrument under clause (ii) of sub-section (3) of section 17a" statement of objects and reasonsduring the budget session of parliament in the current year 2005, it was proposed to amend the definition of "securities" in the securities contracts (regulation) act, 1956 (the scr act) so as to provide a legal framework for trading of securitised debt including mortgage backed debt2 securitisation is a form of financing involving pooling of financial assets and the issuance of securities that are re-paid from the cash flows generated by the assets  this is generally accomplished by actual sale of the assets to a bankruptcy remote vehicle, that is, a special purpose vehicle, which finances the purchase through the issuance of bonds  these bonds are backed by future cash flows of the asset pool the most common assets for securitisation are mortgages, credit cards, auto and consumer loans, student loans, corporate debt, export receivables, off-shore remittances, etc3  besides other advantages, securitisation (a) allows banks and financial institutions to keep these loans off their balance-sheet, thus reducing the need for additional capital; (b) provides the banks and financial institutions with alternative forms of funding risk transfer, a new investor base, potential capital relief and capital market development; (c) can reduce lending concentration, improve liquidity and improve access to alternate sources of funding for banks and financial institutions; (d) facilitates attainment of funding at lower cost as a result of isolating the assets from potential bankruptcy risk of the originator; (e) facilitates better matching of assets and liabilities and  the development of the long-term debt market; (f) provides diversified pools of uniform assets; and (g) has the advantage of converting  non-liquid loans or assets which cannot be easily sold to third party investors into liquid assets or marketable securities lower funding costs are also a result of movement of investments from less efficient debt markets to more efficient capital markets through the process of securitisation4 in india, the securitisation market remains underdeveloped although two major legislative  initiatives, namely, (a) the amendment to the national housing bank act, 1987 (nhb act) in the year 2000; and (b) the enactment of the securitisation and reconstruction of financial assets and enforcement of security interest act, 2002, (sarfaesi act), have been taken, the market has not picked up because of the absence of the facility of trading on stock exchanges  the potential buyers get discouraged by the possibility of having to hold the certificate or instrument in respect of securitisation transactions till maturity  this, in turn, restricts the growth of business of housing finance companies and banks5 the securitisation transactions under the nhb act are not covered under the definition of "securities" under the scr act  as such, trading in certificates or instruments relating to such transactions cannot take place on stock exchanges and buyers of such securitised financial certificates or instruments are left with few exit options under the sarfaesi act, while "security receipts" have been covered under the definition of "securities", the provisions of the said act  restrict sale and purchase only amongst qualified institutional buyers  besides, the "security receipts" under the sarfaesi act can be issued only by a securitisation company or a reconstruction company registered with the reserve bank of india this obviously limits the interest in such receipts and the market has not taken off at all6 keeping in view the potential of the securities market for the certificates or instruments under securitisation transactions, international trends and consultations held with major institutional participants and market experts, it has been decided to amend the  scr act, inter alia,—(i) include securitisation certificate  or instrument under the definition of"securities" and to insert for the said purpose, a  new  sub-clause (ie) in clause (h) of section 2 of  the scr act, 1956;(ii) to provide for obtaining approval from the securities and exchange board of india for issue of the proposed certificate or instrument and procedure therefor and insert for the said purpose a new section 17a in the scr act, 1956; and(iii)  to provide for the manner in which contents of such certificate or instrument, being the "securities" and acknowledging beneficial interest shall be disclosed7 the bill seeks to achieve the above objectivesnew delhi;p chidambaramthe 7th december, 2005 memorandum regarding delegated legislationclause 4 of the bill proposes to amend section 31 of the securities contracts(regulation) act, 1956 so as to confer power upon the securities and exchange board of india to make regulations on the matters such as specifying the form and manner in which an application shall be made under clause (a) of sub-section (2) of section 17a; specifying the contents of the certificate or instrument under clause (i) of sub-section (3) of section17a and the manner in which such contents shall be disclosed in the certificate or instrument under clause (ii) of sub-section (3) of section 17a2 the regulations made by the securities and exchange board of india shall be laid, as soon as may be, after they are made, before each house of parliament3 the matters in respect of which regulations may be made are generally matters of procedure and administrative details and it is not practicable to provide for them in the bill itself the delegation of legislative power is, therefore, of a normal character annexure extracts from the securities contracts (regulation) act, 1956 (42 of 1956)    definitions2 in this act, unless the context otherwise requires,—    31 (1)   power of securities and exchange board of india to make regulations(2) in particular, and without prejudice to the generality of the foregoing power, such regulations may provide for the manner in which at least fifty-one per cent of equity share capital of a recognised stock exchange is held within twelve months from the date of publication of the order under sub-section (7) of section 4b by the public other than the shareholders having trading rights under sub-section (8) of that section     lok sabha———— a billfurther to amend the securities contracts (regulation) act, 1956————(shri p chidambaram, minister of  finance)mgipmrnd—4388ls(s3)—12-12-2005