NORMS REGULATING TRANSACTIONS BETWEEN MEMBERS/ DEALERS AND CLIENTS. - S.O. No.3052 - SMD/SED/CIR/93/23321 - SEBI

SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai, the 27 th October, 1995 S.O. No.3052.- The following Chapter is to be added as Chapter VIII-A after the existing Chapter VIE of the bye-laws of the OTCEI: ANNEXURE I 1. Separate bank account of clients. Members /dealers shall maintain a consolidated bank account for all clients which shall be separate from their own account. This account will be titled as clients' account. The members/dealers shall maintain separate accounts so as to distinguish the monies received from or on account of and moneys paid to or on account of each of their clients and the moneys received and the moneys paid on their own account. Further, the members/dealers shall compulsorily make payment/receive moneys from/into their own account for all transactions entered into by them as a principal. 2. Separate books of account Members/dealers should maintain separate books of account to distinguish the clients' securities from their own securities and the monies received/paid on account of clients and on their own account. The books of account maintained by members/dealers on account of clients would help to distinguish the money paid by each client. The books of account to be maintained by members/dealers should be in accordance with rule 15 of the Securities Contracts (Regulation) Rules, 1957, and regulation 17 of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992. 3. Books of account pertaining to the clients should, inter alia, provide for the following:- (i) securities received for sale or kept pending delivery in the market ; (ii) securities fully paid for, pending delivery to the clients; (iii) securities received for transfer or sent for transfer by the member/dealer in the name of the client or his nominee(s) ; (iv) securities that are fully paid for and are held in custody by the member/dealer as security. Proper authorisation from client for the same shall be obtained by the member/dealer; (v) fully paid for clients' securities registered in the name of members/dealers, if any, towards margin requirements. Moneys to be paid into client's account 4. Members /dealers shall deposit only the following moneys into the client's account:- (i) money held or received on account of client; (ii) such money belonging to the member/dealer as may be necessary for the purpose of opening or maintaining the account; (iii) money for replacement of any sum which may, by mistake or accident, have been drawn from the client's account in contravention of clause 5 here in below ; (iv) a cheque/draft received by a member/dealer representing in part money due to the client and in part money due to the member/ dealer. 5. Moneys to be withdrawn from clients' account Members/dealers shall withdraw only the following moneys from the client's account: (i) money which is required for payment to or on behalf of clients or for or towards payment of a debt due to the member/dealer; (ii) money drawn on client's authority; (iii) money in respect of which there is a liability of clients to the member/ dealer, provided the money so drawn does not exceed the total of the money so held for the time being for each such client; (iv) Such money belonging to the member/dealer as may have been paid into the client's account under 4(ii) and (iv) mentioned above; (v) Money which may, by mistake or accident, have been paid into such account in contravention of clause 4 above. 6. Member's/dealer's right to lien Nothing mentioned hereinabove shall deprive a member/dealer of any recourse or right by way of lien, set-off, counter-claim, charge or other wise against moneys standing to the credit of client's account. 7. Transactions, due dates and settlements. Buying client - Listed securities - In the case of listed securities, the buying client must tender full payment for the securities bought within two days from the date of generation of a counter-receipt unless he has an existing equivalent credit in his account with the member/dealer. The member/dealer shall deliver the securities to the client within two working days of pay out by the exchange. The member/dealer shall issue to the client a counter-receipt for all transactions in the listed securities category within 24 hours of the execution of the contract. Permitted securities - In the case of permitted securities, the buying client must tender full payment within two days of the issuance of a purchase confirmation slip/contract note, unless he has an existing equivalent credit in his account with the member/dealer. The member/dealer shall deliver the securities to the client within two working days of pay-out by the exchange. The member/dealer shall issue to the client a purchase confirmation slip/ contract note for all transactions in the permitted securities category within 24 hours of the execution of the contract. Selling client - Listed securities - In the case of listed securities; the selling client must deliver the securities within valid transfer documents within two days of the issuance of the sales confirmation slip. The member/dealer shall make payment to the client within two working days of pay out by the exchange. The member/dealer shall issue to the client a sales confirmation slip for all transactions in the listed securities category within 24 hours of the execution of the contract. Permitted securities - In the case of permitted securities, the selling client must deliver the securities with valid transfer documents within two days of the issuance of the sales confirmation slip/contract note. The member/dealer shall make payment to the client within two working days of pay-out by the exchange. The member/dealer shall issue to the client a sales/confirmation slip/ contract note for all transactions in the permitted securities category within 24 hours of the execution of the contract. 8. Margins - Member/dealer may, at his discretion, prescribe margin limits to be furnished by the clients before undertaking any sale or purchase of securities on behalf of his clients. In case the member/dealer wishes to prescribe margins, then he should at least take a minimum of 20 per cent of the price of the securities proposed to be purchased/sold. However, a member/dealer may waive the margins if he is satisfied that the respective client has sufficient credit balance against his name or has deposited the relevant share certificate along with duly executed valid transfer deed to the member/dealer. 9. Closing out of clients' account (a) All purchase transactions - A member / dealer may forthwith close-out all transactions of a buying client on non-receipt of full payment within two days of the counter receipt having been issued for listed securities or within two days of the pay-in day, whichever is earlier; of the purchase confirmation slip/contract note having been issued for permitted securities, by selling the securities in the open market, after deducting his service charges and remitting to the client any profit arising out of closing-out of transactions. Any loss arising therefrom, may be adjusted against the margin money of the client. (b) All sale transactions - A member/dealer may forthwith close-out all transactions of selling client on his failure to deliver the securities sold along with the valid transfer deeds within two days of the sale confirmation slip having been delivered by the counter in case of listed securities or within two days of the sales confirmation slip/contract note having been delivered by the counter in the case of permitted securities, by purchasing the securities in the open market after deducting his service charges and any loss incurred on such purchase being met from the margin money of the client standing within the member/ dealer. Any profit arising therefrom shall be paid to the client after deducting his service charges. ANNEXURE III Amended clause 01 of Chapter II of the bye-laws is as follows : 01. The OTC Committee shall be appointed by the board of directors and shall consist of: (a) The managing director of the OTC Exchange of India; (b) The chief operating officer of the OTC Exchange of India as an alternate to the managing director; (c) Not more than five representatives of promoter institutions; and (d) Such representatives of the members and dealers and independent representatives not exceeding five, as may be decided by the board from time to time. The following modifications are made in the articles of association of the OTC Exchange of India:- ANNEXURE III Articles 110 :- (i) The company shall be entitled to agree with the President of India for the appointment of not more than two directors of the company by the President of India as contemplated by this article in respect of any advance or advances made by the Government of India or in respect of any guarantee or guarantees that may be given by the Government of India in connection with the company's borrowings. (ii) The company shall appoint such members not exceeding three as may be nominated by Securities and Exchange Board of India (SEBI) on the board of OTC Exchange of India. (iii) The Government directors and SEBI directors so appointed shall not be liable to retire by rotation or be removed from office except by the President of India and/or the Securities and Exchange Board of India, respectively. Article 120A : Subject to the provisions of the Act and of these articles, the directors may from time to time appoint one of their body to be a managing director of the company for such terms not exceeding five years at a time or in the event of his re-appointment such other extended period of re-appointment in terms of the provisions of the Companies Act, 1956, and subject to such conditions as they may think fit and may, from time to time (subject to the provisions of any contract between him and the company) remove him from office and appoint another in his place. The appointment of managing director along with the terms and conditions of service, the renewal of appointment and the termination of the service of the managing director shall be subject to the prior approval of the Securities and Exchange Board of India. It shall be the duty of the managing director to give effect to the directives, guidelines and order issued by the Securities and Exchange Board of India in order to implement the applicable provisions of the laws, rules, regulations as also the rules, memorandum and 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 board of directors with the prior approval of the Securities and Exchange Board of India or on receipt of direction to that effect from the Securities and Exchange Board of India, subject to the concerned managing director being given an opportunity of being heard against such termination. Article 120B : Subject to the provisions of the Act and of these articles, the managing director shall not, while he continues to hold that office, be subject to retirement by rotation, and he shall be subject to the provisions of any contract between him and the company, be subject to the same provisions as to resignation and removal as the other directors of the company and he shall ipso facto and immediately cease to be a managing director if he ceases to hold the office of director from any cause. Article 120C : The remuneration of the managing director (subject to the provisions of the Act and these articles) shall, from time to time, be fixed by the directors and be in accordance with the provisions of section 269 of the Companies Act read with Schedule XIII to the Act or any statutory modifications or re-enactment thereof for the time being in force, and be in accordance with the terms of his contract with the company. Article 120D : Subject to the provisions of the Act and to the terms of any contract with him, the managing director shall have the whole or substantially the whole of the management of the affairs of the company subject to the superintendence, control and direction of the board of directors including the following functions:- (i) The managing director shall be vested with the executive powers of the exchange to run the day-to-day administration and to enforce the articles, rules, bye-laws and regulations of the exchange and shall exercise such powers, etc., as are provided hereunder and as may be delegated or entrusted to him by the board from time to time. (ii) Subject to the control and supervision of the board, the managing director shall have the powers in matters which concern disciplining of trading and member's/dealer's activities including enforcement of the articles of association, bye-laws and regulations of the exchange in such matter. The managing director will have the powers to impose penalty and/or suspension of member(s)/dealer(s) from doing business for such period as may be decided from time to time in case of violation of the articles, bye-laws and regulations of the exchange and subject to the member(s)/dealer(s) being given an opportunity to explain the charges against him. Article 137A : The directors may, subject to the provisions of the Act, delegate any of their powers to Committees consisting of such of their body or any other person as they think fit and they may from time to time revoke such delegation. Any Committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed on it by the directors. Article 137B : The board of directors shall constitute three sub-Committees namely, arbitration, disciplinary and default sub-Committees. Insofar as these sub-Committees are concerned they shall consist of five members of which not more than 40 per cent shall be the representatives of the members/dealers of the exchange and the balance 60 per cent shall be representatives of the persons other than members/dealers of the exchange, whose appointment shall be subject to the prior approval of the SEBI. The quorum for all the three sub-Committees shall be three members. (A) Arbitration sub-Committee : (i) Arbitration sub-Committee for the purpose of adjudicating any disputes between the following persons shall be constituted by the board of directors: (a) Between members. (b) Between members and non-members. (c) Between non-members. (ii) The Arbitration sub-Committee shall consist of such members as mentioned in article 137B(1), and the nomination of the persons on the said sub-Committee shall be subject to the prior approval of the Securities and Exchange Board of India. (iii) All unsettled claims, complaints, difference and disputes between members inter se, members and non-members and non-members inter se arising out of or in relation to any bargains, dealings, transactions or contracts made at the exchange, whether entered into or not, shall be subject to the provisions of the Arbitration Act, 1940, as provided under the bye-laws and regulations and should be referred to the concerned Arbitration sub-Committee. (B) Default sub-Committee : (i) Default sub-Committee shall consist of such members as mentioned in article 137B(1), and the nomination of the persons on the said sub-Committee shall be subject to the prior approval of the Securities and Exchange Board of India. (ii) Default sub-Committee shall deal with all cases of defaulting or defaulted members / dealers including the claims arising thereof and filed by the members/dealers of the exchange. This sub-Committee shall also be responsible for review of the cases of deflated members/dealers. (iii) Re-admission of defaulters - A member's/dealer's right of membership/dealership shall lapse and vest in the exchange immediately on his being declared defaulter. On the declaration of default he shall at once cease to be a member/dealer of the exchange and as such, cease to enjoy any of the rights of a member/dealer but the rights of his creditor member/s dealers against him shall remain unimpaired. The board of directors may re-admit a defaulter as a member/dealer, subject to the provisions contained in these presents. A notice of every application by a defaulter for re-admission shall be given at least 15 days prior to his re-admission. Any member/dealer or any other creditor intending to object to the re-admission of the defaulter shall communicate the grounds of his objection to the board of directors by a letter within 14 days of the date of the said notice of the application for re-admission. All such objections shall be deemed privileged and confidential. Upon an application for re-admission by a defaulter, the Committee shall investigate his conduct and account and no further proceedings shall be taken by the board of directors with regard to his re-admission until the report of the default sub-Committee shall have been submitted together with a statement as to the defaulter's estate signed by himself. (C) Disciplinary sub-Committee.:- (i) The disciplinary sub-Committee shall consist of such members as mentioned in article 137B(1), and the nomination of the persons on the said sub-committee shall be subject to the prior approval of the Securities and Exchange Board of India. (ii) The main function of this sub-Committee will be disciplining the erring member/dealer as per the directions of the board or suo motu and to make recommendations to the board of directors regarding enforcement of discipline amongst members/dealers of the exchange. This sub-Committee will be empowered to impose fine and/or penalties and to make recommendations to the board for higher fines and penalties and to make recommendations to the board for higher fines and penalty including expulsion, suspension or termination of the membership/dealership. 2. The board of directors shall from time to time, fill in any vacancy in the membership of the sub-Committee. 3. The board of directors may, subject to the provisions of clause 1 of article 137B hereinabove, if they so desire, co-opt any person whether a member/dealer of the exchange or not, to act in any of the sub-Committees mentioned above. 4. The proceedings of the said sub-Committees shall be conducted in the same manner as that of the OTC Committee meetings. 5. Each sub-Committee shall exercise such powers and duties and be subject to such regulations if any, as are set out in their respective behalf by the bye-laws and regulations of the exchange and be subject to any directions, bye-laws or regulations that may be framed or given by the board of directors from time to time in that behalf. ANNEXURE IV Clause VIII of Memorandum of Association of OTC Exchange of India VIII. The authorised share capital of the company is ₹ 20,00,00,000 (Rupees twenty crores) divided into 2,00,00,000 equity shares of ₹ 10 each, with power to increase and reduce the capital of the company. Article 3 of the articles of association of OTC Exchange of India : 3. The authorised share capital of the company is ₹ 20,00,00,000 divided into 2,00,00,000 equity shares of ₹ 10 each. [No. SMD/SED/CIR/93/23321] S. GOPALAN, Gen. Manager Co. Secy.