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TMI BlogOrder under Section 4B (6) read with section 4B (7) of the Securities Contracts (Regulation) Act, 1956 in the matter of the BSE (Corporatisation and Demutualisation) Scheme, 2005.X X X X Extracts X X X X X X X X Extracts X X X X ..... EBI communicated its observations on the said Scheme to BSE and advised it to resubmit the Scheme after considering the said observations. 1.2 SEBI made further enquiries from BSE and explained its observations to BSE through meetings with its officials on 24th March and 27th March 2005. BSE, vide its letter dated 30th March 2005, submitted a revised Scheme. It was noted that while this Scheme, inter alia, provided for the succession of BSE being an Association of Persons by a company to be incorporated under the Companies Act, 1956 under the name and style of the 'Bombay Stock Exchange Limited' for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities as recognized stock exchange and segregation of ownership and management from the trading rights of the members, it did not provide for certain matters required for the purpose of and in connection with the corporatisation and demutualisation of BSE as observed by SEBI vide its letter dated 23rd March, 2005. The observations made by SEBI included the following: a. Voting Rights: The voting rights of a shareholder, who is also a trading member along with that of persons acting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to interpretation of the term "persons acting in concert" at a later date and to facilitate the leading Public Financial Institutions to acquire a strategic stake in the equity of the exchange. 2. 2 Trading Members: A few Members are not registered with SEBI under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, but will nevertheless become trading members on corporatisation and demutualisation. However, in accordance with Rule 3 of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, such Members would not be able to buy, sell or otherwise deal in securities until they are registered with SEBI. Therefore, the trading members should be a stock broker or a trading member or clearing member of any segment of the exchange. 2.3 Board Composition: BSE Scheme did not include the provisions: (i) the remaining directors are appointed in the manner as may be specified by SEBI from time to time, and (ii) SEBI shall have the right to nominate as many directors on the Governing Board, as and when deemed fit, irrespective of the size of the Governing Board. In this regard BSE has submitted that the manner of appointment of remaining directors will be provided in the Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulatory Organization and a profit-making company. In such a case, the conflict of interest, which corporatisation and demutualisation as enshrined in the SC(R)A intends to avoid, may creep in. Therefore, demutualised stock exchange needs to be effectively regulated. Further, a Stock Exchange is a State under Article 12 of the Constitution and hence amenable to writ jurisdiction. Therefore, it is necessary for SEBI to ensure the highest standards of governance in stock exchanges. The Scheme should contain a specific reference to regulatory powers of SEBI and SEBI should, in the interest of trade and public interest, have express powers in-built in the Scheme to make or amend the rules of the Bombay Stock Exchange Limited including that of the constitution and powers of the Governing Board. Hence, the clause relating to Board composition is required to be modified to retain the powers of SEBI to appoint or nominate directors as and when deemed fit. A suitable provision has been made in the Scheme accordingly. 3.4 Utilisation of Assets and Reserves: It is the spirit of section 4B (3) of SC(R)A that the assets and reserves of the exchange should not be used for the benefit or enrich ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is modified to allow additional privileges to the existing members with the prior approval of SEBI. 3.6 BSE has provided that upon transfer of the duties and functions of the clearing house of BSE to the clearing corporation, all the members of BSE should be admitted as clearing members of the clearing corporation, so as to enable the members to clear the trades in the same manner as is presently being done by them. It is felt that by virtue of such provision the existing trading members shall automatically become members of the clearing corporation without requiring them to qualify or comply with the prescribed requirements of the clearing corporation. The clearing corporation will have its own rules which will be approved by SEBI at the time of their recognition. The clearing members will have to separately qualify and comply with the rules of clearing corporation. Therefore, the provision has been suitably modified. 4.0 In view of the above, SEBI is satisfied that it would be in the interest of trade and also in the public interest to approve the Scheme with certain modifications as mentioned above in consonance with the object of the SC(R)A. Accordingly, the Scheme is hereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that the activities specified in the respective clauses of this Scheme shall be implemented as per the time schedule specified in those clauses. 2. Definitions In this Scheme, unless the context otherwise requires, - 2.1 "Bombay Stock Exchange Limited" means the company incorporated in pursuance of clause 3 of this Scheme for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities as a recognized stock exchange and to succeed BSE. 2.2 "BSE" means the stock exchange also known as "The Stock Exchange, Mumbai", an unincorporated association of persons having its principal place of business at Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai, which has been recognized by the Central Government under the Securities Contracts (Regulation) Act, 1956 by and under notification No. 17/2/56-SE/EAD dated August 31, 1957, and whose name has been changed to BSE pursuant to the approval granted by SEBI by its letter No.SMD/SEAID-I/BSE/592/02, dated 10th January, 2002. 2.3 "Due Date" means the date, as may be determined by the Governing Board of BSE, which shall not be later than 3 months from the date of publication of the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same meanings respectively assigned to them in the above mentioned acts, rules, bye-laws and regulations. 3. Incorporation of Bombay Stock Exchange Limited 3.1 The First Shareholders shall incorporate a public company limited by shares under section 12 of the Companies Act, 1956 in the name and style of "Bombay Stock Exchange Limited". 3.2 The First Shareholders shall each subscribe to and pay for 10,000 fully paid-up equity shares of the face value of Re.1/- each for cash at par of Bombay Stock Exchange Limited. 4. Governing Board of Bombay Stock Exchange Limited 4.1 The first Governing Board shall comprise of such of the members of the Governing Board of BSE on the date of incorporation of Bombay Stock Exchange Limited as are named as first directors in the Articles of Association of Bombay Stock Exchange Limited, subject to the condition that the representatives of the Members do not exceed one-fourth of the total strength of the Governing Board. 4.2 The first Governing Board may hold office till Due Date. 4.3 The Governing Board, on or after Due Date, shall be constituted in accordance with the provisions of the Articles of Association of Bombay Stock Exchange Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the possession or control of BSE or to which BSE may be entitled, including those held by any trustees in trust for BSE or for the Members or Limited Trading Members of BSE and Trading Members and/or Clearing Members of the Derivatives Segment of BSE or for the objects and purposes of BSE, and including those vested in or held by any committee of BSE, shall stand transferred to and shall vest in and shall be in the possession or control of and shall become the entitlement of Bombay Stock Exchange Limited, and Bombay Stock Exchange Limited shall have the same right, title and interest therein or thereto as BSE and such trustees or committees had immediately prior to the Due Date. 7.2 all obligations and liabilities of BSE shall stand transferred to and shall become obligations and liabilities of Bombay Stock Exchange Limited. 7.3 Bombay Stock Exchange Limited shall, in place and stead of BSE, become a party to, and shall be bound by and entitled to, all contracts, agreements and other instruments to which BSE is a party or by which BSE is bound or to which BSE is entitled, and the same may be enforced and acted upon by or against Bombay Stock Exchange Limited accordingly. 7.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson desirous of becoming a Trading Member of any segment of Bombay Stock Exchange Limited shall be admitted if he complies with requirements and brings in specified fees and deposits as specified in the Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited. 8.5 Bombay Stock Exchange Limited shall, for the purpose of admitting any person as a Trading Member of a segment, follow uniform standards in terms of capital adequacy, deposits, fees etc. irrespective of mode of acquisition of trading right by that person: Provided that different standards may be followed for admission of a person as a Trading Member who has acquired trading right by way of transmission; Provided further that different standards may be followed for admission of Trading Members in different segments. 8.6 A Trading Member may surrender his membership of any segment to Bombay Stock Exchange Limited in the manner specified in the Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited 8.7 Trading Members of the Cash Segment of Bombay Stock Exchange Limited and the Clearing Members of the Derivatives Segment of Bombay Stock Exchange Limited shall clear and settle trades respectively till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and operations as the successor of BSE; and (ii) BSE shall stand dissolved. 12. Rules, Bye-Laws and Regulations of Bombay Stock Exchange Limited 12.1 The Rules, Bye-laws and Regulations, 1957 and the Rules, Bye-laws and Regulations of the Derivatives Segment of BSE on the day preceding the Due Date shall, unless contrary to or inconsistent with or excluded by this Scheme, apply to Bombay Stock Exchange Limited on and from the Due Date. 12.2 Bombay Stock Exchange Limited shall incorporate the provisions of this Scheme appropriately in the "Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited" on or before the Due Date. 12.3 The "Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited" may be amended after the Due Date in accordance with the applicable laws, provided that no such amendment is inconsistent with any provision of this Scheme. 13. Clearing Corporation of Bombay Stock Exchange Limited 13.1 Bombay Stock Exchange Limited shall, within one year of the Due Date, subject to the prior approval of SEBI, transfer the duties and functions of the clearing house of Bombay Stock Exchange Limited to a clearing corporation, being a company incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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