The Legal Framework Governing Securities Contracts And Derivatives In India: Investor Protection, Contractual Enforceability And Financial Market Stability
Saba Saif
ABSTRACT
India's securities and derivatives markets operate within a layered legal framework combining the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, regulations issued by the Securities and Exchange Board of India, exchange and clearing-corporation rules, and general principles of contract and insolvency law. This paper examines how that framework addresses three interconnected objectives: protecting investors, ensuring enforceability of securities contracts and maintaining financial market stability. It argues that Indian law has moved from a primarily exchange-centred model toward a sophisticated regulatory architecture in which SEBI supervision, mandatory clearing, margining, disclosure, market-abuse controls and intermediary regulation collectively reduce systemic and conduct risks. Nevertheless, the rapid growth of derivatives, algorithmic trading, technological intermediation and increasingly complex products creates continuing challenges. Contractual enforceability cannot be viewed solely through the Indian Contract Act, 1872 because exchange-traded derivatives operate within specialised statutory and regulatory structures. Similarly, investor protection must be reconciled with sophisticated participants' need for efficient risk transfer. The paper proposes stronger product governance, transparent margining, robust client-asset protection, clearer close-out and netting rules, technology-neutral supervision and better coordination among financial regulators. The objective is a framework that preserves contractual certainty without sacrificing market integrity or systemic resilience.
Keywords: Securities Contracts; Derivatives; Investor Protection; Contractual Enforceability; Financial Market Stability; SEBI Regulation.
