Circular No.8726 - SEBI - IES/DC/ 8726/00

SECURITIES AND EXCHANGE BOARD OF INDIA INVESTIGATIONS ENFORCEMENT SURVEILLANCE DEPARTMENT Mittal Court, A Wing, Gr. Floor, 224, Nariman Point, Mumbai 400 021 IES/DC/ 8726/00 May 31, 2000 The Managing Director/Executive Director, The National Stock Exchange of India Ltd., The Stock Exchange, Mumbai. Dear Sir, The Derivative Segment of the Exchange its Clearing House have been granted approval to commence derivative trading settlement in SEBI approved derivative contracts. You are advised to appoint: Governing Board of Derivative Exchange/Segment (which shall include Governing Council/Executive Committee), Clearing Council (which shall include the Clearing Council/Executive Committee of Derivatives Clearing House / Clearing Corporation), Chief Executive Officer of the Derivative Exchange/Segment Chief Executive Officer of Derivatives Clearing House/Corporation, and Statutory Committees such as Disciplinary Action Committee, Arbitration Committee, Defaulters Committee, within a period of two months from the date of final approval for trading and settlement granted by SEBI in the manner specified in the enclosed Guidelines. Yours sincerely, (L. K SINGHVI) L.K Singhvi Sr. Executive Director GUIDELINES FOR APPOINTMENT OF CHIEF EXECUTIVE OFFICER OF DERIVATIVE EXCHANGE/SEGMENT, CHIEF EXECUTIVE OFFICER OF DERIVATIVES CLEARING HOUSE/CORPORATION, GOVERNING BOARD OF DERIVATIVE EXCHANGE/SEGMENT, CLEARING COUNCIL OF DERIVATIVES CLEARING HOUSE/CORPORATION AND STATUTORY COMMITTEES Governing Board means the governing body of Derivative Exchange/Segment which shall include Governing Council/Executive Committee, etc. Clearing Council means the governing body of derivatives clearing house / clearing corporation and which shall include the Clearing Council/Executive Committee of Derivatives Clearing House / Clearing Corporation, etc. Chief Executive Officer of the Derivative Exchange/Segment means the person responsible for day to day operations of the derivatives exchange /segment. Chief Executive Officer of Derivatives Clearing House/Corporation means the person responsible for day to day operation of the derivatives clearing house / corporation. Statutory Committees means the Disciplinary Action Committee, Arbitration Committee and Defaulters Committee for the derivatives trading and settlement. Board means the Securities and Exchange Board of India(SEBI). The exchanges / clearing house shall within a period of two months from the date of final approval for trading and settlement granted by the Board shall constitute the Governing Board, Clearing Council and Statutory Committees and shall appoint the Chief Executive Officer of derivatives segment, Chief Executive Officer of the Clearing House / Corporation in the manner prescribed hereunder:- (1) Unless otherwise agreed to by the Board, the Governing Board of the Derivative Exchange/ Segment shall be constituted as follows: i. The Derivative Exchange/Segment should have a separate Governing Board which shall not have representation of Trading/Clearing Members of the Derivative Exchange/Segment/Clearing House/Clearing Corporation beyond 40% of the total members on the Governing Board provided that no Trading Member/Clearing Member shall be allowed to simultaneously be on the Governing Board of the Derivative Exchange/Segment and any of the underlying securities market. ii. The members of the Governing Board of the Derivative Exchange /Segment shall elect a Chairman within a period of 10 days from the constitution of the Board and if the Chairman is a Trading/Clearing Member then he shall not carry on any trading or clearing business on any Exchange during his tenure as Chairman. iii. Not less than 60% of the members on the Governing Board of the Derivative Exchange/Segment shall be public representative, Board nominees or any other person appointed with the approval of the Board. Provided that not more than 50% of such members shall be common with the Governing Board / Executive Committee of the underlying securities exchange. Further, such members shall be from amongst the persons of integrity having necessary professional competence and experience in the areas related to securities / derivatives markets. iv. One-third of the elected members under clause 1(i) shall retire at each annual general meeting and shall be eligible to offer themselves for re-election. Provided, that where a person has been a member elected for two consecutive terms on the governing board of the derivatives exchange / segment, he shall not offer himself for re-election for a further period of two years. v. The Chief Executive Officer of the derivatives exchange/segment shall be member of the governing board under the category of members under clause (iii) above. vi. The members appointed under clause (iii) above shall not be subject to retirement by rotation and shall hold office at the pleasure of the Board or as per the provision of the Act and the Rules under which the Exchange is constituted. (2) Unless otherwise agreed to by the Board, the Clearing Council shall be constituted as prescribed hereunder: - i. The clearing council shall not have any representation from the trading or clearing members. ii. The members of clearing council shall be persons of integrity having necessary professional competence and experience in the areas related to securities / derivatives markets. Their appointment however will be subject to approval by the Board. iii. The Chief Executive Officer of the derivatives clearing house / corporation shall be a member of the clearing council. iv. The members on the clearing council shall elect a Chairman within a period of 10 days from the constitution of the clearing council. v. The members appointed on the clearing council shall not be subject to retirement by rotation and shall hold office at the pleasure of the Board or as per the provisions of the Act and the Rules under which the clearing house / corporation is constituted. (3) For the purpose of appointment of the non-elected members on the governing board of the derivatives exchange / segment or on the clearing council, the derivatives exchange /segment and the clearing council may forward the names of persons to the Board for approval of such appointments. The Board shall, however have the right to appoint any other persons, whose names have not been forwarded by the governing board of the derivatives exchange/segment and / or clearing council. (4) The appointment, the terms and conditions of service, the renewal of appointment and the termination of service of the Chief Executive Officer of derivatives exchange/segment and the clearing house / corporation shall be subject to prior approval of the Board. (5) The Rules or Article of Association, as the case may be, of the stock exchange shall provide that besides the governing board / clearing council, it shall be the duty of the Chief Executive Officer to give effect to the directives, guidelines and orders issued by the Board in order to implement the applicable provisions of law, rules, regulations as also the Rules or the Articles of Association, Regulations and Bye-laws of the stock exchange. Any failure in this regard will make him liable for removal or termination of service by the governing board of the derivatives exchange / segment or the clearing council as the case may be, with the prior approval of the Board or on receipt of direction to that effect from the Board, subject to the concerned Chief Executive Officer being given an opportunity of being heard against such termination. (6) The Rules or Articles of Association, as the case may be, shall provide that not more than forty percent of the trading or clearing members of the derivatives exchange/segment and its clearing house / corporation shall be appointed on the arbitration, disciplinary and default committees. Atleast sixty percent shall be nominated on the said committees from persons other than members of the derivatives exchange/segment and its clearing house/corporation. The appointment of member on the statutory committees shall be with the prior approval of the Board. The Default Committee shall function under the supervision of Clearing Council.