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TMI BlogOrder U/s 11 of the Securities Contracts (Regulation) Act, 1956 Superseding the Board of Directors of the Uttar Pradesh Stock Exchange Association Ltd.X X X X Extracts X X X X X X X X Extracts X X X X ..... , (ii) Unruly behaviour of the brokers in the Board meeting held on July 27, 2001 and attempt to threaten and restrain the Public Representative Director from discharging their functions, (iii) Process of recruitment of ED without following the guidelines issued by SEBI, (iv) Non attendance by the President and restraining the ED from attending the meeting convened by SEBI on August 14, 2001 to discuss the plan of each exchange for Demutualization/ corporatisation, (v) Non compliance of SEBI directives, (vi) Delay in considering the inspection report and forwarding the compliance report with reference to violation of SEBI directives. (vii) Board meeting not conducted as per rules and bye laws of UPSE. 2 Thereafter SEBI issued a notice dated September 03, 2001 under Section 11 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCRA) upon the Governing Board of the UPSE (here after referred to as the Governing Board ) advising them to show cause as to why the Governing Board should not be superseded in view of the above mentioned instances of mismanagement and irregularities in the functioning of the exchange. The Governi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectify the irregularities in the exchange. 8 Thereafter, SEBI, vide its letter dated March 26th 2002 called upon the UPSE to inter alia comply with the conditions imposed at the time of renewal of recognition granted to the UPSE, observations in the inspection report for 2000-2001, stabilizing the trading system, certifying that activities such as unauthorized carry forward transactions, interference by the elected directors in the day-to-day administration of the exchange had been stopped and steps have been taken to appoint Executive Director and operationalise the SGF of the exchange as per the scheme approved by SEBI and submit a compliance report, failing which SEBI would be constrained to take such measures as it deems fit including supersession of UPSE. 9 Thereupon, UPSE vide their letter dated April 22, 2002 submitted their report which allegedly detailed the manner in which they had rectified the irregularities. However, on perusal of the said report it is observed that UPSE have not rectified many of the irregularities mentioned in the show cause notice with the directives of SEBI. It was observed that SEBI has issued the following directions to UPSE:- (i) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed timely, if required. (xii) The Exchange shall take immediate measures to stop the practice of unofficial carry forward of transactions, and impose deterrent punishment to the brokers who have been involved in such trades. (xiii) The exchange is advised to ensure that the surveillance set-up is as specified in SEBI circular no. IEMI/LKS/MI/2990/95 dated August 8, 1995 and shall maintain the hierarchy. (xiv) The exchange shall take steps to comply with SEBI Circular dated July 2, 1999 and accept scrips from approved securities for the purpose of capital adequacy and ensure that the members maintain the minimum BMC. (xv) The Exchange shall take immediate steps for the installation of the software for compliance of suggestions of the inspection report for the year 1999-2000 2000-2001, which have not been complied on account of non-availability of software. (xvi) The UPSE shall operationalize the SGF of the exchange in terms of SMD SEBI Circular no. 13 dated June 9, 1997. (xvii) The UPSE shall take immediate steps to appoint the Executive Director. (xviii) UPSE should comply with the observations made in the inspection report for the year 2000-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the backup and (2) Passwords register detailing the secret passwords and periodic changes of passwords to be kept under the safe custody of the GM/President/ED. (xxxi) The procedure for physical verification of Fixed Assets being followed by the Exchange needs to be improved and all Fixed Assets should be physically verified as at the year end by a team of official(s) assisted by the Statutory Auditors/Internal Auditors instead of adopting the system of departmental confirmations, as prevalent currently. (xxxii) The Exchange should work out a system of apportioning the common pool expenses between itself and the subsidiary. The expenditure incurred only for its subsidiary should be recovered from it. (xxxiii)The Exchange is advised to formulate a strategy to improve the financial health of the Exchange as the financial condition has deteriorated over the last few years. It should look into the quantum of user charges being recovered from its members and should consider increasing it. 10 It is also noted that UPSE has failed to comply with the conditions stipulated by SEBI at the time of renewal of recognition of UPSE. It is relevant to note that SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been initiated by SEBI against 14 brokers of the Exchange for entering into unofficial carry forward transactions. It is also noted that despite the order of SEBI under section 8 of SCRA, amending the articles of association notified on May 20, 2002 stock brokers are still holding the post of President and Vice President. The day-to-day administration, signing of cheques, staff matters, purchases, etc. of the UPSE are still being handled by the President, elected directors and other brokers. Further, reports have been received that the Exchange has appointed the Executive Director without the approval of SEBI. There have also been reports of misuse of the funds of the Exchange by the elected directors and contributors to the subsidiary projects have been refunded ₹ 50,000/- each totalling to ₹ 23 lakhs at a loss to the exchange. A proposal to refund the initial contribution to the SGF @ ₹ 25,000 per member has been announced by the Chairman of the newly formed UPSE member's association with the tacit blessings of the elected directors. Furthermore, the UPSE has not operationalised the SGF under one pretext or the other. Model Rules for stock exchanges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors are not jeopardised further. 16 SEBI is mandated to ensure that the systems and the procedures on an exchange are such, that transactions are carried on in a lawful manner and without adversely affecting the interest of investors. In order to ensure that such systemic improvements take place on the exchange, the persons who have prevented transactions from being carried on in a lawful manner need to be excluded from governance of the exchange. In order to ensure that systemic improvements take place on the exchange, it is necessary that an independent and impartial person is appointed. 17 In view of the above and in exercise of the powers conferred on me under Section 11 of the Securities Contracts (Regulation) Act, 1956 to be read with the Government of India Notification number S.O. 573 dated July 30, 1993 and Section 4 (3) of the SEBI Act, 1992, the Board of the Uttar Pradesh Stock Exchange is hereby superseded for a period of one year with effect from July 12, 2002 and Shri. M. N. Sabharwal is hereby appointed as an Administrator to exercise and perform all the powers and duties of the Governing Board. Shri. Sabharwal may take assistance of such persons as he thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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