(1) On and from the commencement of these regulations, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 and the following circulars, shall stand rescinded:
(a) Circular No. CIR/MRD/DSA/33/2012, dated December 13, 2012 - Procedural norms on Recognitions, Ownership and Governance for Stock Exchanges and Clearing Corporations;
(b) Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/30 dated January 22, 2016 - Amendment to SEBI Circular CIR/MRD/DSA/33/2012 dated December 13, 2012 pursuant to amendment in Regulation 2(1)(b) of SECC Regulations, 2012.
(2) Notwithstanding such repeal, anything done or any action taken or purported to have been taken or contemplated under the repealed regulations and circulars before the commencement of these regulations shall be deemed to have been done or taken or commenced or contemplated under the corresponding provisions of these regulations.
(3) After the repeal of the regulations and circulars referred to in sub-regulation (1), any reference thereto in any regulation, guideline, circular or direction issued by the Board shall be deemed to be a reference to the relevant provisions of these regulations.
SCHEDULE -I FORM A [See regulations 4 and 12] Application for recognition of clearing corporation under regulation 4/ Application for renewal of recognition of clearing corporation under regulation 12 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 To ……………………….
……………………….
Subject: Application for recognition or renewal of recognition of a clearing corporation under regulation 4/regulation 12 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
Sir,
1. We/I on behalf of .................. (name and address of clearing corporation) being a clearing corporation hereby apply for recognition/renewal of recognition for the purposes of the said Act in respect of clearing and settlement of contracts in securities.
2. Two copies of the rules, memorandum and articles of association relating in general to the constitution and management of the clearing corporation and two copies of the bye-laws for the clearing and settlement of contracts in securities are enclosed.
3. All the necessary information required in the Annexure to this Form is enclosed. Any additional information will be furnished as and when called for by the Board.
4. We/I, on behalf of the said clearing corporation, hereby undertake to comply with the requirements of section 4 of the said Act and such other conditions and terms as may be contained in the certificate of recognition or be provided or imposed subsequently.
Proof of payment by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other electronic mode permitted by RBI or through Demand Draft No ........ dated ....... drawn in favour of Securities and Exchange Board of India towards payment of fees as specified in regulation 5/ regulation 12 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018,is attached.
Yours faithfully, Authorised signatory ANNEXURE TO FORM 'A' Part I — General
1. Name of the applicant clearing corporation.
2. Address.
3. Date of establishment or incorporation of a clearing corporation.
4. Is your clearing corporation a joint stock company (state whether public or private) registered under the Companies Act?
5. Give details of your capital structure and attach three copies of the audited balance sheets and profit and loss account of the clearing corporation for the preceding three years.
6. Give details of shareholding pattern of the clearing corporation.
7. Has your business viability plan been appraised by a reputed agency having expertise in securities market for its viability? Give a copy of the appraisal report.
8. Have you entered into an agreement with recognised stock exchange(s) for clearing and settling its trades? Give the name of such stock exchange(s) and details of its organisation and management.
Part II — Clearing membership of clearing corporation.
9. State the number of clearing members at the time of application. Also specify how many are inactive.
10. State whether there is any provision, resolution or convention for limiting the number of clearing members and whether in pursuance thereof you have fixed a ceiling on the number of clearing members that you would admit.
11. Do you insist on any minimum qualifications and experience before enrolling new clearing members? If so, give details.
12. State the different classes of clearing members, if any, the number thereof and the privileges enjoyed by each class. What is the procedure followed by your clearing corporation for the admission of different classes of new clearing members?
13. What are the rates of your annual subscription in respect of the different classes of clearing members?
14. Do you collect any security deposit from your clearing members? If so, give details and also state the manner in which such deposits are utilised and the rate of interest allowed, if any.
15. Do you collect any admission or entrance fees from your clearing members? If so, how much?
16. Do you insist on your clearing members divesting themselves of other activities either as principal or as employee?
17. Give details of the scale of brokerage and other charges, if any, specified by your clearing corporation.
18. Do you prescribe standard form of agreement to be entered with the trading member for engaging the services of your clearing member? Attach two copies of such agreement.
19. What are the measures adopted by you to regulate or prohibit advertising or issuing circulars by your clearing members?
20. Do you require clearing members to supply such information or explanation and to produce such books relating to their business as your governing board may require?
21. Do you undertake periodic inspection of your clearing members? Give details including the number of annual inspections and manpower available for conducting inspection.
Part III — Governing Board
22. What is the present strength of your governing board? Give details of the constitution, powers of management, election and tenure of office of members of the governing board, and the manner in which its business is transacted.
23. Are any trade or commercial interest represented on your governing board? If so, give details of interests represented.
24. Do you associate members of investors associations with the management of your clearing corporation? If so, state the manner in which it is done.
25. Are there any Government or the Board representatives on your governing board? If so, furnish their names.
26. How many public interest directors are there on the governing board? Furnish their names, qualifications and experience.
27. Do your rules provide for the direct election by clearing members on the Advisory Committee of the governing board? If so, give details of its constitution, tenure, powers and functions.
28. Do you have any provision for the appointment of standing or ad hoc subcommittees of the governing board? If so, furnish details of their composition, appointment, term of office, powers and functions.
29. Give the designations, powers and duties of key management personnel of your clearing corporation. Give details as to the mode of their appointment, tenure of office and remuneration.
30. What are the disciplinary powers with the governing board to enforce due compliance by clearing members of the rules and bye-laws of the clearing corporation and generally to ensure proper standard of business conduct?
31. What provisions have you made for the levy and recovery of fees, fines and penalties?
Part IV — Clearing and Settlement
32. Describe the clearing and settlement system of the clearing corporation.
33. State the different kinds of products being cleared and settled or proposed to be cleared and settled in your clearing corporation (e.g., equity, equity derivative, currency derivatives, interest rate derivatives, debt instruments, etc.). State the period of delivery, payment and the settlement mechanism in each case.
34. What are the conditions subject to which trades are settled and cleared on your clearing corporation?
35. What are your requirements for admitting derivative transactions for clearing and settlement?
36. Do you have the right to prohibit, withdraw or suspend clearing and settlement of dealings admitted for clearing and settlement? If so, under what circumstances is this right exercised?
37. Give details of the clearing and settlement charges and other charges, if any, levied by your clearing corporation.
38. What provisions have you made for periodical settlement of contracts and differences thereunder, the delivery of, and payment for securities and the passing of delivery orders?
38. How do you fix, alter or postpone the dates of settlement?
39. Do you provide any safeguards for the prevention of market manipulation, especially in the case of physical delivery of shares in the derivative markets and for meeting emergencies in settlement? Give details.
40. Provide a detailed assessment of the measures adopted to address the various risks faced by the clearing corporation in terms of the BIS-IOSCO paper on 'Principles for Financial Market Infrastructures.'
41. Do you publish any statistics in regard to business done on the clearing corporation including the value of Settlement Guarantee Fund and transactions settled through the clearing corporation, if maintained? In particular, have you evolved any machinery for computing the gross and net exposure of the clearing corporation and the value of clearing and settling of different kinds of contracts permitted on your clearing corporation? Give details.
42. (a) Do you have any bye-laws, contravention of which makes a contract void?
(b) Do you have necessary infrastructure, margin mechanism and adequate risk management mechanism to ensure market safety and integrity? Give Details
(c) Do you undertake any other activity other than clearing and settling? Give Details.
(d) What is your net worth? Give Details.
(e) Give details of business hours?
(f) What are the conditions subject to which dealings are admitted for clearing and settlement?
43. Do you maintain Settlement Guarantee Fund? Give details of the corpus of the settlement guarantee fund, its contribution, circumstances for utilisation, priority of utilisation, etc
44. How do you ensure the adequacy of the Settlement Guarantee Fund? Do you perform stress tests on a periodic basis. Give details and results of the latest stress test.
45. What is the netting procedure adopted by the clearing corporation for determining the obligations of the clearing member?
46. What is your policy in respect of settling trades of shareholder stock exchange and non-shareholder stock exchange?
47. Do you have any provisions for regulating the volume of business and exposure taken by any individual clearing member other than through a system of margins? If so, give details.
48. What provisions have you made for regulating— (a) the entering into contracts, their performance and rescission (b) the consequences of breach, default or insolvency on the part of trading or clearing members whether acting as buyers, sellers or intermediaries?
Part V — Infrastructure
49. Do you have any machinery for arbitration of disputes between clearing members and/or between clearing members and their constituents and trading member and clearing member? Give details.
50. Have you established connectivity with the depositories, clearing banks, stock exchange and clearing members? Give details.
51. What is the average load that is being handled by your systems? What is the peak load that can be handled and the extent of scalability of the systems in times of stress?
52. What is your business continuity plan? Give details including details of the disaster recovery site.
53. What are the names, qualifications and expertise of your key management personnel?
FORM B [See regulation 9 and 12] The Securities and Exchange Board of India No ..................................... The Securities and Exchange Board of India, having considered the application for grant of recognition/renewal of recognition under regulation 4/regulation 12 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 by ........ (name and address of clearing corporation) and being satisfied that it would be in the interest of the trade, in the interest of securities market and also in the public interest so to do, hereby grants, in exercise of the powers conferred by section 4 read with sub-section (4) of section 8A of the Securities Contracts (Regulation) Act, 1956, recognition to the said clearing corporation for .................. year/years ending ....................... 20 ...... subject to the conditions stated herein below or as may be prescribed or imposed hereafter.
Seal of the Board Date:
Place: Mumbai Signature of Officer
SCHEDULE - II
PART - A [See regulation 26(1)] Code of conduct for the directors on the governing board
1. Meetings and minutes.
Every director of the recognised stock exchange and recognised clearing corporation shall—
(a) not participate in discussions on any subject matter in which any conflict of interest exists or arises, whether pecuniary or otherwise, and in such cases the same shall be disclosed and recorded in the minutes of the meeting;
(b) not encourage the circulation of agenda papers during the meeting, unless circumstances so require;
(c) offer their comments on the draft minutes and ensure that the same are incorporated in the final minutes;
(d) insist on the minutes of the previous meeting being placed for approval in subsequent meeting;
(e) endeavour to have the date of next meeting fixed at each governing board meeting in consultation with other members of the governing board;
(f) endeavour to ensure that in case all the items of the agenda of a meeting were not covered for want of time, the next meeting is held within fifteen days for considering the remaining items.
2. Code of Conduct for the public interest directors.
(a) In addition to the conditions stated in Para (i) above, public interest directors of the recognised stock exchange or recognised clearing corporation shall, endeavour to attend all the governing board meetings and they shall be liable to vacate office if they remain absent for three consecutive meetings of the governing board or do not attend seventy five per cent. of the total meetings of the governing board in a calendar year.
(b) Public interest directors shall meet separately, at least once in six months to exchange views on critical issues.
(c) The public interest directors shall identify important issues which may involve conflict of interest for the stock exchange/ clearing corporation, or may have significant impact on the functioning of recognised stock exchange or recognised clearing corporation, or may not be in the interest of securities market. The same shall be reported to the Board.
3. Strategic planning.
Every director of the recognised stock exchange and recognised clearing corporation shall—
(a) participate in the formulation and execution of strategies in the best interest of the recognised stock exchange or recognised clearing corporation and contribute towards pro-active decision making at the governing board level;
(b) give benefit of their experience and expertise to the recognised stock exchange or recognised clearing corporation and provide assistance in strategic planning and execution of decisions.
4. Regulatory compliances.
Every director of the recognised stock exchange and recognised clearing corporation shall—
(a) ensure that the recognised stock exchange or recognised clearing corporation abides by all the applicable provisions of the Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, rules and regulations framed thereunder and the circulars, directions issued by the Board from time to time;
(b) ensure compliance at all levels so that the regulatory system does not suffer any breaches;
(c) ensure that the recognised stock exchange or recognised clearing corporation takes steps commensurate to honour the time limit stipulated by Board for corrective action;
(d) not support any decision in the meeting of the governing board which may adversely affect the interest of investors and shall report forthwith any such decision to the Board.
5. General responsibility.
Every director of the recognised stock exchange and recognised clearing corporation shall—
(a) place priority for redressing investor grievances and encouraging fair trade practice so that the recognised stock exchange or recognised clearing corporation becomes an engine for the growth of the securities market;
(b) endeavour to analyse and administer the recognised stock exchange or recognised clearing corporation issues with professional competence, fairness, impartiality, efficiency and effectiveness;
(c) submit the necessary disclosures/statement of holdings/dealings in securities as required by the recognised stock exchange or recognised clearing corporation from time to time as per their Rules or Articles of Association;
(d) unless otherwise required by law, maintain confidentiality and shall not divulge/disclose any information obtained in the discharge of their duty and no such information shall be used for personal gains;
(e) maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of their duties in order to inspire public confidence and shall not engage in acts discreditable to their responsibilities;
(f) perform their duties in an independent and objective manner and avoid activities that may impair, or may appear to impair, their independence or objectivity or official duties;
(g) perform their duties with a positive attitude and constructively support open communication, creativity, dedication, and compassion;
(h) not engage in any act involving moral turpitude, dishonesty, fraud, deceit, or misrepresentation or any other act prejudicial to the administration of the recognised stock exchange or recognised clearing corporation.
PART - B [See regulation 26(2)] Code of Ethics for directors and key management personnel of stock exchanges or clearing corporations The 'Code of Ethics' for directors and key management personnel of the recognised stock exchanges or recognised clearing corporations, is aimed at improving the professional and ethical standards in the functioning of recognised stock exchanges or recognised clearing corporations thereby creating better investor confidence in the integrity of the securities market.
1. Objectives and underlying principles.
The Code of Ethics for directors and key management personnel of the recognised stock exchange or recognised clearing corporation seeks to establish a minimum level of business/ professional ethics to be followed by these directors and key management personnel, towards establishing a fair and transparent marketplace. The Code of Ethics is based on the following fundamental principles:
(a) Fairness and transparency in dealing with matters relating to the stock exchange or clearing corporation and the investors.
(b) Compliance with all laws/ rules/ regulations laid down by regulatory agencies/ recognised stock exchange/ recognised clearing corporation.
(c) Exercising due diligence in the performance of duties.
(d) Avoidance of conflict of interest between self interest of directors/ key management personnel and interests of recognised stock exchange or recognised clearing corporation and investors.
2. Regulatory oversight committee.
For overseeing implementation of this Code, a regulatory oversight committee shall be constituted by every recognised stock exchange and recognised clearing corporation under the respective governing board.
3. General standards.
(a) Directors and key management personnel shall endeavour to promote greater awareness and understanding of ethical responsibilities.
(b) Directors and key management personnel, in the conduct of their business shall observe high standards of commercial honour and just and equitable principles of trade.
(c) The conduct of directors and key management personnel in business life should be exemplary which will set a standard for other members of the recognised stock exchange or recognised clearing corporation.
(d) Directors and key management personnel shall not use their position to give/get favours to/from the executive or administrative staff of the stock exchange or clearing corporation, technology or service providers and vendors of the recognised recognised stock exchange or recognized clearing corporation, or any listed company at the recognised stock exchange.
(e) Directors and key management personnel shall not commit any act which will put the reputation of the recognised stock exchange or recognised clearing corporation, in jeopardy.
(f) Directors, committee members and key management personnel of the recognised stock exchange or recognised clearing corporation, should comply with the provisions of all applicable law to the securities market.
4. Disclosure of dealings in securities by key management personnel of the stock exchange or clearing corporation.
(a) Key management personnel of the recognised stock exchange or recognised clearing corporation shall disclose on a periodic basis as determined by the recognized stock exchange or recognised clearing corporation (which could be monthly), all their dealings in securities, directly or indirectly, to the governing board/ regulatory oversight committee/ Compliance Officer.
(b) The dealings in securities shall also be subject to trading restrictions for securities about which key management personnel in the recognised stock exchange or recognised clearing corporation may have unpublished price sensitive information. Requirement laid down under Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 shall be referred in this regard.
(c) All transactions must be of an investment nature and not speculative in nature. Towards this end, all securities purchased must be held for a minimum period of sixty days before they are sold. However, in specific/exceptional circumstances, sale can be effected anytime by obtaining pre-clearance from the Compliance Officer to waive this condition after recording in writing his satisfaction in this regard.
Explanation.—"securities" for the purposes of this Code shall not include mutual fund units.
5. Disclosure of dealings in securities by directors of the stock exchange or clearing corporation.
(a) All transactions / dealings in securities by the directors and their relatives shall be disclosed to the governing board of the recognised stock exchange or recognised clearing corporation.
(b) All directors shall also disclose the trading conducted by firms/corporate entities in which they hold twenty per cent. or more beneficial interest or hold a controlling interest, to the stock exchange/clearing corporation.
(c) The details including time period for disclosure under clause 5 (a) and 5 (b) above shall be prescribed by the stock exchange/clearing corporation, provided that the time period for disclosure shall not be later than fifteen days of the transaction / dealing.
(d) Directors who are Govt. of India nominees or nominees of Govt. of India statutory bodies or Public Financial Institutions and are governed by their own codes shall be exempt from this requirement.
6. Avoidance of conflict of interest.
a) No director of the governing board or member of any committee of the recognised stock exchange or recognised clearing corporation shall participate in any decisionmaking/adjudication in respect of any person /matter in which he is in any way, directly or indirectly, concerned or interested.
b) Whether there is any conflict of interest or not in a matter, shall be decided by the governing board.
7. Disclosures of beneficial interest.
All directors and key management personnel shall disclose to the governing board, upon assuming office and during their tenure in office, whenever the following arises:—
(a) any fiduciary relationship of self and family members and directorship/partnership of self and family members in any trading member or clearing member;
(b) shareholding, in cases where the shareholding of the director/key management personnel, directly or through his family exceeds 5 per cent. in any listed company or in other entities related to the securities markets;
(c) any other business interests.
8. Role of the Chairperson and directors in the day to day functioning of the stock exchange or clearing corporation.
(a) The Chairperson and directors shall not interfere in the day to day functioning of the recognised stock exchange or recognised clearing corporation and shall limit their role to decision making on policy issues and to issues as the governing board may decide.
(b) The Chairperson and directors shall abstain from influencing the employees of the recognised stock exchange or recognised clearing corporation in conducting their day to day activities.
(c) The Chairperson and directors shall not be directly involved in the function of appointment and promotion of employees unless specifically so decided by the governing board.
9. Access to information.
(a) Directors shall call for information only as part of specific committees or as may be authorised by the governing board.
(b) There shall be prescribed channels through which information shall move and further there shall be audit trail of the same. Any retrieval of confidential documents/ information shall be properly recorded.
(c) All such information, especially which is non-public and price sensitive, shall be kept confidential and not be used for any personal consideration/ gain.
(d) Any information relating to the business/operations of the recognised stock exchange or recognised clearing corporation, which may come to the knowledge of directors/ key management personnel during performance of their duties shall be held in strict confidence, shall not be divulged to any third party and shall not be used in any manner except for the performance of their duties.
10. Misuse of position.
Directors/ committee members shall not use their position to obtain business or any pecuniary benefit in the organization for themselves or family members.
11. Regulatory Oversight committee to lay down procedures.
(a) The regulatory oversight committee shall lay down procedures for the implementation of the code and prescribe reporting formats for the disclosures required under the code.
(b) The Compliance Officer shall execute the requirements laid down by the regulatory oversight committee.
While the objective of this Code is to enhance the level of market integrity and investor confidence, it is emphasized that a written code of ethics may not completely guarantee adherence to high ethical standards. This can be accomplished only if directors and key management personnel of the recognised stock exchange or recognised clearing corporation commit themselves to the task of enhancing the fairness and integrity of the system in letter and spirit.
PART – C [See regulation 28] Measures to ensure segregation of regulatory departments
(1) In order to ensure the segregation of regulatory departments, every recognised stock exchange and recognised clearing corporation shall adopt a "Chinese Wall" policy which separates the regulatory departments of the recognised stock exchange or recognised clearing corporation from the other departments. The employees in the regulatory departments shall not communicate any information concerning regulatory activity to any one in other departments. The employees in regulatory areas may be physically segregated from employees in other departments including with respect to access controls. In exceptional circumstances employees from other departments may be given confidential information on "need to know" basis, under intimation to the Compliance Officer.
(2) Regulation 28 of these Regulations mandate segregation of regulatory departments from other departments. For this purpose, an indicative list of regulatory departments is given below. The governing board of the stock exchange/ clearing corporation may specify any other department having a regulatory function in addition to the list given below as a regulatory department.
(3) Departments handling the following functions shall be considered as regulatory departments in a Stock Exchange:-
(a) surveillance,
(b) listing,
(c) member registration,
(d) compliance,
(e) inspection,
(f) enforcement,
(g) arbitration,
(h) default,
(i) investor protection,
(j) investor services,
(4) Departments handling the following functions shall be considered as regulatory departments in a Clearing Corporation:-
(a) Risk management,
(b) member registration,
(c) compliance,
(d) inspection,
(e) enforcement,
(f) default,
(g) investor protection,
(h) investor services,
(5) The recognized stock exchange / recognized clearing corporation shall ensure that the regulatory departments viz., surveillance, inspection, risk management, default, investor protection, investor services etc, are sufficiently staffed with adequate number of persons having professional and relevant experience at all times.
PART - D Application for seeking recognition as a Stock Exchange/ Clearing Corporation [See regulation 4, 6 and 7]
(1) An applicant seeking recognition as a stock exchange/ clearing corporation shall substantiate its capability to fulfill all the requirements laid down under SCRA, SCRR and regulation 7 of these Regulations at the time of making the application.
(2) For the purpose of grant of in-principle approval under regulation 7(5) of these Regulations, the Board may take into account the factors which it may deem fit in the interest of the securities market. For this purpose, the Board may consider the information and documents including but not limited to the following:-
(a) Business feasibility plan for the next five years,
(b) Net worth certificate/ financial books and bank account details,
(c) Detailed write-up on each of its functions,
(d) Details of authorised officials along with specimen signatures of the authorized signatories,
(e) Proposed organisational structure,
(f) Necessary undertakings,
(g) Manpower planning,
(h) Background and necessary information (as specified herein) to establish that its shareholders/promoters are fit and proper persons, Information regarding its Office set-up, appointment of Managing Director after following due process.
(3) Before grant of final approval, in addition to the above, the applicant shall satisfy the Board with regard to compliance of the following:
(a) Appointment of heads of key departments such as legal, listing, member registration, trading and surveillance in case of a stock exchange, and
(b) Appointment of heads of key departments such as risk, legal, clearing and settlement, in case of a clearing corporation.
(c) Satisfactory compliance with observations of the Board during inquiry/ inspection by the Board.
(d) Any other requirement as the Board may deem necessary for disposal of the application.
PART - E Bye-laws of Clearing Corporation, and procedure for submitting amendments to Articles/Rules/Bye- laws [*]9, etc., of a recognised stock exchange / recognized clearing corporation for approval of the Board [See regulation 42]
(1) A clearing corporation shall in terms of applicable provisions of section 9 of the SCRA and regulation 42 of these Regulations make bye-laws, providing inter alia for the following:-
(a) the timings for pay-in and pay-out of funds and securities;
(b) rules for clearing and settlement;
(c) risk management mechanism;
(d) process of netting, novation and guarantee for settlement of trades;
(e) norms for contribution into and utilisation of the Fund in terms of regulation 39 of these Regulations ;
(f) rights and obligations of the clearing members vis-a-vis the clearing corporation, other clearing members, the trading members and clients of such trading members;
(g) criteria for admission and regulation of clearing members;
(h) default handling mechanism;
(i) Committees.
(j) any other matter as may be specified by the Board.
(2) Procedure for submitting amendments to Articles/Rules/Bye- laws [*]10, etc., for approval of the Board:- The amendments to the Memorandum, Articles of Association, 9 Omitted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019. Prior to its omission, it read as “/Regulations”.
Rules, bye-laws [*] 11 (as may be applicable) etc., of the stock exchange/clearing corporation, in terms of the Securities Contracts (Regulation) Act, 1956, the Securities Contracts (Regulation) Rules, 1957, other applicable provisions in this regard, shall be submitted for approval of the Board, subsequent to the following.
a. The proposed amendment/s shall first be approved by the governing board of the stock exchange/clearing corporation, followed by shareholders approval (wherever applicable), then shall be submitted to the Board for approval and then published in the Gazette of India (wherever applicable) and the respective State.
b. The proposal shall be accompanied by the minutes of the governing board, the shareholder's resolution and public criticism. However, in case the amendments are pursuant to Regulations, circular etc, issued by the Board, the same shall not be subject to shareholder's approval.
PART - F Application for grant of approval for holding equity shares in a recognized stock exchange or recognized clearing corporation.
[See regulation 19 (4)]
(1) A shareholder seeking approval of the Board for holding equity shares in a recognised stock exchange or recognised clearing corporation shall submit the following particulars:
(a) Name
(b) Address
(c) Details of employment/ business, if any:
(d) SEBI registration number, if any.
(e) Details of registration with other statutory authorities,.
(f) Declaration regarding the fulfillment of requirements of regulation 20 of these Regulations.
(g) Details of action /penalties taken/imposed against/upon him/it by any statutory authority in India or abroad.
(h) Details of activities that may, in the opinion of the shareholder, lead to his/its disqualification.
(i) Association with trading members/clearing members of stock exchanges/clearing corporations.
10 Omitted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019. Prior to its omission, it read as “/Regulations”.
11 Omitted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019. Prior to its omission, it read as “, Regulations”.
(j) Cases pending before any Court, Tribunal or any other statutory authority in India or abroad, if any.
(k) Prior approvals from the Board as fit and proper, if any.
PART G Monitoring of shareholding limits [See regulation 19A]
(1) In terms of sub-regulation 10 of regulation 19, the stock exchange/clearing corporation shall put in place a monitoring mechanism to ensure compliance with the shareholding conditions specified in these Regulations at all times. Stock exchange/clearing corporation shall:-
(a) Check the shareholding data on a periodic basis to ensure that the shareholding restrictions specified under Chapter IV of the these Regulations are complied with at all times.
(b) Upon breach of shareholding limits, they shall intimate the same to the Board within 7 days.
(c) In case of listed stock exchanges, they would be guided by the Board circular dated January 01, 2016.
(d) Disseminate on its website, the number of shares available in the non-public, FII and FDI category. The information shall also be disseminated by the stock exchange on which the shares may be listed.
PART – H Appointment of Directors [See regulation 24 and 25] 12[(I)] Procedure for appointment:-
(1) All directors while seeking approval shall submit to the stock exchange/clearing corporation the following details:-
(a) Name
(b) Address
(c) Educational qualification
(d) Details of employment/ Occupation, past and present
(e) Details of other directorships
(f) DIN No.
(g) Declaration regarding the fulfillment of requirements specified under regulation 20 of these Regulations.
12 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
(h) Declaration confirming compliance of Regulation 23 (6) read with Regulation 2
(1) (b) of these Regulations, in respect of non-association with trading member or clearing member.
(i) Details of regulatory action taken against by any statutory authority in India.
(j) Details of activities that may in the opinion of the director, lead to his disqualification.
(k) Association with trading members/clearing members of stock exchanges/clearing corporations.
(l) Disclosure of the names of his dependents associated with the securities market as member, sub-broker, authorized person or holding any SEBI registration.
(m) An undertaking that he shall abide by the code of conduct and code of ethics prescribed in Part A and Part B of Schedule II to these Regulations.
(n) In the case of public interest directors, consent letters for acting as a public interest director.
(o) Pending / completed criminal cases pending before any authority in India or abroad, if any.
(2) The stock exchange/ clearing corporation shall forward the above details to the Board while recommending their names along with the minutes of the governing board meeting where their name/s was approved, copy of the shareholder's resolution (wherever applicable), a confirmation by the stock exchange/ clearing corporation that they are fit and proper persons in terms of their fit and proper criteria and are not associated with any trading member or clearing member in terms of regulation 23 (6) read with regulation 2
(1) (b) of these Regulations.
13[(II)] Managing Director / Executive Director:-
(1) The Nomination and Remuneration Committee of the recognized stock exchange/ recognized clearing corporation shall be responsible for selection of CEO /Managing Director / Executive Director, as the case may be. The managing director shall be selected through open advertisement in all editions of atleast one national daily from amongst persons qualified in the fields of capital market/ finance/ management and possessing sufficient experience. 14[The stock exchange/ clearing corporation shall forward the new names to the Board before two months from the last working day of the existing Managing Director].
(2) In case a vacancy of managing director arises due to unforeseen reasons, the stock exchange/ clearing corporation shall forward the new names to the Board within 60 days from the date of submission of resignation or such vacation of office.
13 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
14 Substituted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019. Prior to its substitution, it read as “In case of re-appointment, or extension of appointment, the stock exchange/ clearing corporation shall apply to the Board two months before the last working day of such Managing Director”.
15[(III)] Public Interest Directors:-
(1) The names of public interest directors shall be forwarded to the Board after the approval of the Board of the stock exchange/clearing corporation. The shareholders approval shall not be necessary. A minimum of two names shall be submitted to the Board for each vacancy of public interest directors.
(2) The stock exchange/ clearing corporation shall ensure that public interest directors are selected from diverse field of work. While deciding to propose a particular person as a public interest director, the stock exchange/ clearing corporation shall also take into account the following factors:
(a) Qualification in the area of law, finance, accounting, economics, management, administration or any other area relevant to the financial markets.
(b) Atleast one person shall be inducted having experience and background in finance / accounts who may preferably be inducted in the audit committee.
(c) Persons currently holding positions of trust and responsibility in reputed organisations or person who have retired from such positions.
(d) Persons who are likely to have interested positions in commercial contracts and financial affairs of stock exchanges, may preferably be excluded. Persons who are regular traders/ speculators in the market or are director in the board of the promoter entity of the Stock Exchange or Clearing Corporation, shall be excluded.
(3) Public interest directors shall peruse the relevant laws, code of conduct, code of ethics, etc and submit an undertaking to the stock exchange/clearing corporation that they are aware of their role, responsibilities and obligations. The stock exchange/clearing corporation shall provide at least seven days of training to every public interest director each year.
(4) In case of extension of the term of the public interest director or appointment of a new public interest director, the stock exchange/ clearing corporation shall apply to the Board two months before the expiry of the term. In addition to the other requirements prescribed herein, the application for extension of term of the public interest director shall be accompanied with, his attendance details on meetings of various mandatory committees and on the governing board of the stock exchange / clearing corporation, performance review and the reasons for extension of term.
(5) The existing public interest director shall continue holding the post, till a new public interest director is appointed in his place.
15 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
16[(IV)] Share Holder Directors
(1) The names of persons to be appointed as shareholder directors shall first be approved by the governing board of the stock exchange/ clearing corporation, followed by shareholders’ approval before submitting the same to the Board for approval.
(2) The manner of election, appointment, tenure, resignation, vacation, etc. of shareholder directors shall be governed by the Companies Act, 2013 save as otherwise specifically provided under the these Regulations or in accordance with the Securities Contracts (Regulation) Act, 1956, circulars issued thereunder.
17[(V)] Selection of trading members/clearing members on the Advisory Committee to the governing board:-
(1) Prior to the appointment to the advisory committee, the governing board of the stock exchange/ clearing corporation shall satisfy itself that the trading members/ clearing members are fit and proper persons in terms of regulation 20 of the these Regulations. The governing board shall frame the eligibility norms, term of office, cooling off period etc., of members of the advisory committee in consultation with the trading members/clearing members of the stock exchange/ clearing corporation.
18[(VI)] General conditions on appointment of directors:-
(1) The stock exchange/ clearing corporation shall complete the appointment process within 30 days from nomination/approval for directors by the Board and submit a compliance report within one week from the date of appointment.
(2) In case any other official of the stock exchange/ clearing corporation is appointed on the governing board in addition to the Managing Director, the same shall be subject to the approval of shareholders and the Board, in that order.
PART - I Norms for compensation policy [See regulation 27 (3)]
(1) Regulation 27 of the these Regulations mandates that the compensation policy for key management personnel of stock exchange/ clearing corporation shall be in accordance with the norms specified by the Board. The compensation norms, in this regard, shall be as follows:-
(a) The variable pay component shall not exceed one-third of total pay.
16 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
17 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
18 Inserted by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019, w.e.f. 04-06-2019.
(b) 50% of the variable pay shall be paid on a deferred basis after three years.
(c) ESOPs and other equity linked instruments in the stock exchange/ clearing corporation shall not be offered or provided as part of the compensation for the key management personnel.
(d) The compensation policy shall have malus and clawback arrangements.
(2) Apart from the above, the compensation policy of the stock exchange/ clearing corporation shall take into consideration the following:
(a) financial condition / health of the stock exchange/ clearing corporation,
(b) average levels of compensation payable to employees in similar ranks,
(c) shall not contain any provisions regarding incentives to take excessive risks over the short term,
(d) revenues, net profit of the stock exchange/ clearing corporation,
(e) comparable to the industry standards,
(f) role and responsibilities of the key management personnel,
(g) periodic review
(3) At the time of seeking approval of the Board for the appointment of the managing director, the stock exchange/ clearing corporation shall seek approval for the compensation of the managing director from the Board. The compensation of the Managing Director of a stock exchange/clearing corporation already appointed with the approval of the Board shall be in accordance with the compensation policy as mentioned above. The same shall be submitted to the Board for approval within three months from the date of issue of these regulations.
PART - J MISCELLANEOUS
(1) Internal manual for conflict resolution: The stock exchange/clearing corporation shall have an internal manual covering the management of conflicts between commercial and regulatory functions of the stock exchange/clearing corporation. The stock exchange/ clearing corporation shall put in place a policy for comprehensive training and awareness of its employees on the various conflicts of interests involved in the functioning of its regulatory departments. Further, the entire conflict management framework shall periodically be reviewed and be strengthened based on the observations of such review.
Sd/- AJAY TYAGI CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA