TMI BlogCommittee on Model Rule and Bye-laws of Stock ExchangesX X X X Extracts X X X X X X X X Extracts X X X X ..... of Stock Exchanges and can be implemented only after all exchanges are corporatised. Some of the Rules may not be applicable in the same way for all stock exchanges. Besides, on account of the nature and constitution of stock exchanges, some of the new Model Rules can not be implemented as suggested. The Model Rules have been divided into 4 Parts. Part 'A' given in the Annexure contains rules which have already been implemented under SEBI directives etc. Reference of Model Rules, Subject matter and the corresponding Circulars issued by SEBI/GOI etc. have been made. It may be seen that while there may be a variation in language in the Model Rules, for most of Rules in Part A, however the basic principle underlying the Model Rules and the relevant SEBI Circular/GOI notification etc. is the same. Such rules have been identified with asterisks in Part A. In respect of Rules No. 5.5 (Compliance Officer), 6.8.1 (Special Authorisation by the Governing Board- Buy back of Membership), 7.20 (Declaration of Defaulter automatically), 7.34 (Apportionment of Consideration Realised/Other Realisation of Receivables) and 8.3.6 (Ethics Committee), SEBI Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit Vaults / Custodial / Depository Services As per Regulation 19 (a) (vii) of SEBI (Depositories Participants) Regulations, 1996, a clearing corporation or a clearing house of a stock exchange may be registered as a depository participant. 3.2.11 Clearing House, Clearing Corporation or Clearing Bank SEBI's circular dated SMD/SED/RCG/270/96 dated January 19, 1996. 3.2.13 Information and Publications SEBI's circular no. SE/10118 dated October 12, 1992 and SMD/POLICY/CIR-32/97 dated December 03, 1997 regarding dissemination of information to investors and brokers. 3.2.16 Promotion of Other Companies SEBI's circular no. SMD- II/POLICY/CIR-37/99 dated November 26, 1999 and SMD-I/POLICY/CIR-40/99 dated December 16, 1999 regarding floating of Floating of a Subsidiary/Company by a Stock Exchange for membershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal requirements, without the approval of SEBI. 5.2 Conditions Precedent for Eligibility 5.2.1 For Individuals Rule 8(1) of SCRR, 1957 5.2.4 For Companies / Bodies Corporate 5.2.4.1 5.2.4.2 Legal Requirements Rule 8(3) (4) and (4A) of SCRR, 1957 5.2.4.3 Disqualification of Designated Directors / Nominees Rule 8(3) (4A) (iv) of SCRR, 1957 5.2.4.5 Minimum Experience Rule 8(3) (4A) (v) of SCRR, 1957 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.5.13 Expelled Member / Trading Member or Defaulter Rule 8(1) (H) of SCRR, 1957 5.2.5.15 Previous Rejection Rule 8(1) (I) of SCRR, 1957 5.2.5 Waiver of Qualification As per SCRR, The Governing Board is empowered to waive qualifications pertaining to experience.* *Model Rules have authorised Governing Board to waive requirements of both educational qualifications and past experience in certain cases 5.3 Other Norms 5.3.1 Other Financial Requirements and Norms Rule 8(4A) (II) of SCRR, 1957 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riteria Met -------Same as above------- 6.5.7 Exchange of Report Between Stock Exchanges GOI Circular no. F.No.1/26/SE/91 dated August 21, 1991 6.5.8 Entrance Fee, Admission Fee, Annual Subscription and Base Minimum Capital GOI Circular no. F.No.1/26/SE/91 dated August 21, 1991 6.5.9 Number of Stock Exchanges GOI Circular no. F.No.1/26/SE/91 dated August 21, 1991* *Model Rules have put a condition that at least one authorised representative/designated partner of the firm/designated director should be resident at each additional stock exchange where he is the member. 6.5.10 Governing Board and Standing Committees GOI Circular no. F.No.1/26/SE/91 dated August 21, 1991 provides that an indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dged Bankrupt Rule 8(3) (b) of SCRR, 1957 6.10.2 Convicted of Fraud Rule 8(3) (c) of SCRR, 1957 6.10.3 Engaged in Other Business Rule 8(3) (f) of SCRR, 1957 6.16 Remisiers 6.16.10 Remisier not to Sign Contract Notes SEBI Circular No. SMD/POLICY/ CIRCULAR/3-97 dated March 31, 1997. 6.18 Sub-brokers 6.18.1 Appointment SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 provide for registration of sub brokers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r compounded with his creditors from becoming a member of the Governing Board. These provisions are also applicable to whole time directors of the corporate member*. *The Model Rules have extended the applicability of the above provisions to membership of standing committees, other committees and position of office bearer of the exchange apart from the Governing Board. 7.34 Apportionment of Consideration Realised / Other Realisation of Receivables 7.34.1 Dues of the Exchange /Clearing House / Clearing Corporation /SEBI SEBI Circular no SMD (B) /Cir/ misc-04/1624/94 dated March 22, 1994 had advised the exchanges that claims of investors against defaulter members should be ranked on par and ratably distributed. Further vide SEBI Circular No.SMD/AA/SU/1939/96 dated May 21, 1996, the claims of SEBI are to be treated on par with the claims of exchange and clearing house. * *Model Rules have, however, put the claims of investors at second level of prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.3.2 Alteration in Number of Members -------Same------- 8.3.6 Ethics Committee 8.3.6.1 Nomination SEBI Circular dated May 17, 2001 regarding Code of Ethics for Directors and Functionaries of Exchanges has prescribed for formation of an Ethics Committee with not more than 40% of the members being elected directors/members of the exchange.. 8.3.6.2 Definitions 8.3.6.2.1 Functionaries SEBI Circular defines Functionaries as officers of the rank of GM and above* *Model Rules define Functionaries as Manager and above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disclosure of Beneficial Interest SEBI Circular as above has prescribed the disclosure requirements for directors of the Exchange.* *Model Rules have applied the same on elected members of the exchange 8.3.6.9 No Role of the Elected Members of the Governing Board in the Day- to- Day Functioning of the Exchange SEBI Circular as above describes the role of Chairman/President and directors of the Exchange.* *Model Rules have applied the same on elected members of the exchange 8.3.6.10 Access to Information SEBI Circular as above describes the role of directors of the Exchange regarding access to information.* *Model Rules have applied the same on elected members. 8.3.6.11 Misuse of Position SEBI Circular as above d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular SMDRP/Policy/ Cir-33/98 November 12, 1998 9.1.1.5 Cancellation of Registration SEBI circular SMD/POLICY/IECG/5694/96 December 20, 1996 9.1.1.6 Criminal Prosecution SEBI Circular no. SMDRP/Policy/Cir-33/98 November 12, 1998: The persons falling in the category of Notified Persons as per the Special Courts(Trial of Offences Relating to Transactions in Securities) Act, 1992, would not continue on the Governing Board and would not be eligible to be elected to the Governing Board for two years from the date the person is de-notified under the said Act* *Model Rule : he is facing charges of criminal offence and the relevant statutory authority has filed criminal prosecution against such member. 9.3 Retiring Elected Members SEBI circular SMD /SED/6919/93 dated April 20, 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appointment and Tenure SEBI circular SMD-II/11615/92 dated November 20, 1992 SEBI circular SMD /SED/6919/93 dated April 20, 1993* *Model Rules have provided for superannuation age of ED as 60 years and tenure of 5 years, subject to renewal. 9.11 Election Procedure for Elected Members 9.11.8 Election of Chairman SEBI circular SMD /SED/6919/93 dated April 20, 1993 11 DISCIPLINARY PROCEEDINGS 11.5 Causes Requiring Disciplinary Action SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 11.5.1 Misconduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, other details like size and utilisation of SGF, IPF, ISF etc. 12.3.1.10 Suspension on Failure to Maintain Base Minimum Capital SEBI Circular SMD/SED/Cir/93/22570 darted October 21, 1993.* *As per Model Rules, When a member/trading member or designated partner or representative member / trading member fails to provide base minimum capital as provided under Rule 12.3.1.1, the Managing Director shall order deactivation of the trader work station/s suspending his business forthwith. PART-B (To be Implemented by the Stock Exchanges) CLAUSE SUB CLAUSE SUBJECT 3 CONSTITUTION, OBJECTS AND CAPITAL / CORPUS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital/Corpus 4 FUNCTIONARIES 4.1 General Body 4.4 Audit Committee 4.6 Membership / Trading Membership Selection Committee 5 ELECTION / SELECTION OF NEW MEMBERS / TRADING MEMBERS 5.1 Legal Requirements / Position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.5.2 Professional Qualification 5.2.5.4 Common Applicability of Conditions 5.2.5.5 Financial Soundness 5.2.5.9 Unsound mind 5.2.5.10 Insolvent 5.2.5.11 Moral Turpitude 5.2.5.12 Other Business Rule 8(1) (F) of SCRR, 1957 and SEBI Circular no. SMD/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Governing Board Sole Judge of Partnership 6.1.12 Permission Necessary 6.1.13 Changes in Partnership 6.1.14 Intimation in Prescribed Form 6.1.15 Notice of Formation of and Changes in Partnership 6.1.16 Withdrawal of Permission 6.1.17 Names to be Printed 6.1.18 Liability of Member / Trading Member Partners 6.1.19 Liability of Partners 6.1.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 Indemnity 6.2.5 Representative Member / Trading Member When to Issue Contract Notes 6.3 Composite Member / Trading Member and Component Members / Trading Members 6.3.1 One or More Additional Membership / Trading Membership 6.3.2 Fulfillment of all Eligibility Criteria 6.3.3 Limit on Number of Memberships / Trading memberships 6.3.4 Payment of Fees 6.3.5 Networth Requirement 6.3.6 Number of Votes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surrender of Membership / Trading Membership 6.8.2 Prohibition to Re-issue Buy-back / Surrender Right 6.8.3 Notice of Surrender 6.8.4 Acceptance or Refusal of Surrender 6.9 Notice of Resignation 6.9.1 Written Notice Required 6.9.2 Objection 6.9.3 Acceptance or Refusal of Resignation 6.10 Termination of Membership / Trading Membership 6.10.4 Minimum Networth, Working Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ex-members/Trading Members as Remisiers 6.16.4 Remisiers not to Engage in Forward Business 6.16.5 Procedure 6.16.5.1 Application 6.16.5.2 Discharge Certificate 6.16.5.3 Absence of Discharge Certificate 6.16.6 Permission Necessary 6.16.7 Approval or Rejection of Application 6.16.8 Commission Terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.18 Sub-brokers 6.18.2 Compliance With the Provisions 6.18.4 Common Applicability of Provisions 7. NOMINATION, TRANSFER, TRANSMISSION AND DECLARATION OF DEFAULTER 7.1 Nomination / Transfer 7.1.1 Nomination by Member / Trading Member 7.1.2 Standing of Minimum Years 7.1.3 Right of Membership / Trading Membership and Right of Nomination of Deceased Member / Trading Member or Defaulter or Deemed Defaulter 7.1.3.1 Nomina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.8.1 Dues of the Exchange 7.8.2 Liabilities Relating to Contracts 7.9 Consideration of Application 7.10 Inquiry 7.11 Admission of New Members / Trading Members 7.12 Admission Under Misrepresentation 7.13 Fresh Nomination 7.14 Payment of Entrance and Admission Fees and Annual Subscription 7.15 Intimation Letter for Election / Selection 7.16 Certificate of Admission to Membership / Trading Membership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company / Body Corporate 7.33 Exercise of Right of Nomination by the Governing Board Where Right of Membership / Public Trading Membership Vested in the Exchange 7.34 Apportionment of Consideration Realised / Other Realisation of Receivables 7.34.5 Surplus 8. CONSTITUTION AND POWERS OF GENERAL MEETING, GOVERNING BOARD, STANDING COMMITTEES, CHAIRMAN, MANAGING DIRECTOR, COMPANY SECRETARY, AUDITOR, LEGAL ADVISOR AND SCRUTINEERS 8.1 General Meeting 8.1.1 Number of Members/Trading Members 8.1.2 Adoption of Statement of Accounts 8.1.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2.3.8 Review 8.2.3.9 General Power 8.2.4 Administrative Powers 8.2.4.1 Fees and Charges 8.2.4.2 Borrowing 8.2.4.3 Dealing With Immovable Property 8.2.4.4 Dealing With Funds 8.2.4.5 Payment Towards Charitable Purpose 8.2.4.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investors Services Committee 8.3.7 Limitation of Constituting other Committees 8.3.8 Removal of Member 8.3.9 Casual Vacancy 8.3.10 Vacation of Office 8.3.11 Retiring Members 8.5 Managing Director 8.5.2 Delegation of Powers 8.5.3 General Operations Powers 8.6 Company Secretary 8.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.8.9 Retirement Age 9.9 SEBI Nominees 9.9.3 Vacancy 9.9.4 Report to SEBI 9.10 Managing Director 9.10.4 Explanation from the Managing Director 9.10.5 Not to Engage in Any Business 9.11 Election Procedure for Elected Members 9.11.1 Notice of Election 9.11.2 Proposal of Candidates 9.11.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.13 Expulsion from the Governing Board 9.14 Conversion Not Requiring Vacation 9.15 Filling up of Causal Vacancies - Elected Members 9.16 Powers of Surviving Members 9.16.1 Where Quorum Exists 9.16.2 To Act to Make Quorum 9.17 Resignation of All Elected Members 10 MEETINGS 10.1. Meetings of Members 10.1.1 Annual General Meeting 10.1.1.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clarifications at Meetings 10.1.4.7 Suspended Member Not to be Present and Vote 10.1.4.8 Chairman of Meeting 10.1.4.9 Decision of Majority 10.1.4.10 Voting by Proxy 10.1.4.11 Voting 10.1.4.12 Poll 10.1.4.13 Validity of Votes 10.1.4.14 Casting of Vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2.3.10.3 Absence During Hearings 10.2.3.11 Quorum 10.2.3.12 Majority 10.2.3.13 Chairman to Have a Casting Vote 10.2.3.14 Special Majority Resolution 10.2.3.15 Ordinary Resolution by Circular 10.2.3.16 Adjourned Meeting 10.2.3.17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expulsion of a Member 11.2.4 Expulsion by Special Resolution Only 11.2.5 Expulsion Rule to Apply 11.2.6 Explanation Before Expulsion 11.2.7 Consequences of Expulsion 11.2.7.1 Membership/Trading Membership Rights Forfeited 11.2.7.2 Lapse of Right of Nomination 11.2.7.3 Office Vacated 11.2.7.4 Rights of Creditors Unimpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Pay Fines and Penalties 11.3.8 Re-consideration/Review 11.3.9 The Managing Director 11.3.9.1 Disablement / De-activation Until Compliance of Requirements 11.3.9.2 Action No Subject to Appeal 11.4 11.4.1 Exclusive Powers in Disciplinary Matters 11.4.2 Appeal of the Governing Board 11.4.3 Authority to Call for Information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urns 11.5.1.12 Vexatious Complaints 11.5.1.13 Failure to Pay Dues and Fees 11.5.2 Unbusinesslike Conduct 11.5.2.6. Unwarrantable Business 11.5.2.7 Compromise 11.5.2.8 Dishonoured Cheque 11.5.2.9 Failure to Carry out Transactions with Clients 11.5.3 Unprofessional Conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.7.1 Prejudicial Business 11.7.2 Unwarrantable Business 11.7.3 Unsatisfactory Financial Condition 11.8 Members/Trading Members and Others to Testify and Give Information 11.9 Permission Necessary for Legal Representation 11.10 Notice of Penalty and Suspension of Business 12 FINANCE AND ACCOUNTS AND PAYMENT OF ENTRANCE FEE, ADMISSION FEE, ANNUAL SUBSCRIPTION AND BASE MINIMUM CAPITAL BY MEMBERS/TRADING MEMBERS AND ASSOCIATES 12.1 Finance and Accounts 12.1.1 Subscriptions and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.3.1.6 First Charge/Paramount Lien on Base Minimum Capital 12.3.1.7 Change of Securities 12.3.1.8 Conditions of Other Approved Securities 12.3.1.9 Return of Base Minimum Capital to Members/Trading Members or Designated Partners or Representative Members/Trading Members 12.3.1.11 Letter of Declaration 12.3.1.12 Nomination Form for Return of Base Minimum Capital and other Credit Amounts/Securities Lying with the Exchange/Clearing Corporation 12.4 For Remisiers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AUDITOR, LEGAL ADVISOR AND SCRUTINEERS 4.8 Chairman SEBI's circular no. SMD/SED/6919/93 dated April 20, 1993 Model Rule: There shall be a Chairman elected by the Governing Board as provided hereinafter and he shall be holding his position in a non-executive capacity. 8.4 Chairman The redignation of President as Chairman and functions and powers of Chairman as recommended by the Committee may be implemented after demutualisation/ corporatisation. 8.4.1 Chairman to Preside -------Same------- 8.4.2 Chairman to Deal at Meetings Only -------Same------- 8.4.3 Representative of the Exchange -------Sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be elected as a member of a stock exchange if he is not a citizen of India, provided that the Governing Body may in suitable cases relax this condition with the prior approval of Central Government. Dispensing with any requirement of relaxation by the Governing Board in this regard may require the amendment to Rule 8(1) (b) of SCRR, 1957.) 6.6 Clearing Member The recommended provisions pertaining to constituting different categories of clearing members may require amendment of SEBI (Brokers and Sub-Brokers) Regulations, 1992 6.6.1 Categories of Clearing Member -------Same------- 6.6.1.1 Trading cum Clearing Member -------Same------- 6.6.1.2 Custodian Clearing Member -------Same---- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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