Securities and Exchange Board of India (hereinafter referred to as SEBI) had discussed the issue of demutualisation with the stock exchanges from time to time. - S.O. No.535(E) - SEBI/LE/8579/2002 - SEBI

Securities and Exchange Board of India Notification Mumbai, the 20 th May, 2002 S.O. 535(E).-- the Hon ble Finance Minister had announced in the Parliament on March 13, 2001, that corporatisation of stock exchanges by which ownership, management, and trading membership would be segregated from each other. Administrative steps will be taken and legislative changes, if required, will be proposed accordingly. In accordance with the above, policy announcement, The Securities and Exchange Board of India (hereinafter referred to as SEBI ) had discussed the issue of demutualisation with the stock exchanges from time to time and Whereas SEBI Board in its meeting held on December 28, 2001, discussed the issue of demutualisation of the stock exchanges and decided that henceforth no broker member shall be an office bearer of an exchange that is hold the position of the President, Vice-President, Treasurer etc., and the other administrative and legal modalities for corporatisation and demutualisation of exchanges of the stock exchanges are being worked out; and Whereas subsequently, SEBI directed all the exchanges including The Uttar Pradesh Stock Exchange Association Ltd (hereinafter referred to as UPSE ) vide circular no. SMD/POLICY/CIR-2/2002 dated January 10, 2002, to implement the SEBI Board decision by suitably amending their Rules, Articles of Association etc., within two months from the date of the said Order; and Whereas SEBI advised UPSE vide letter no. SMD/UPSE/4508/2002 dated March 19, 2002 to confirm whether they had complied with the SEBI directive of January 10, 2002, issued vide SEBI Circular no. 2, whereby no broker member was allowed to hold office as President, Vice-President within a period of two months from the date of the directive and UPSE was also advised to confirm whether they had suitably amended the Rules, Articles of Association etc., to give effect to the above decision taken by the SEBI Board and the policy decision of government in this regard; and Whereas in response to the above mentioned letter and circular dated January 10, 2002, UPSE vide its letter no. UPSE/2001-02/7745 dated March 19, 2002 informed that the post of President and Vice-President are still being held by stock brokers as Articles of Association of the exchange has not been amended as on that date; and Whereas as regards amendment to the Rules, Articles of Association etc., to give effect to the aforesaid SEBI directive, the Board of Directors of the UPSE convened an extra ordinary general meeting on March 09, 2002; and Whereas the proposed resolution to implement the aforesaid SEBI directive was considered in the extraordinary general meeting held on March 09, 2002, UPSE vide its letter dated 18.3.2002 informed that the members alleged that the notice calling the meeting and its resolution are not proper, that the Governing Board had failed to give valid reasons for the notice and the proposed resolution and the members raised several queries which were not answered by the Governing Board and the Chairman of the meeting Shri H K Garg adjourned the extra ordinary meeting to April 06, 2002 as per the provisions of the Companies Act, 1956 and Whereas, it is noted that that the governing board had failed to explain whether the proposed resolutions are in the interests of the exchange, that the governing board was not able to explain properly the policy of the central government on demutualisation and corporatisation, that the members raised the query that since the corpus of the exchange was contributed by them, the fund and property of the exchange should be managed by them, but the Governing Board failed to explain properly the policy of the central government on demutualisation and corporatisation convince the members on the necessity of passing the proposed resolution, that the governing board was not able to answer the queries of the members during the meeting and this indicates that the governing board of exchange failed to take adequate steps to amend the Rules, Articles of Association etc., even after the expiry of the stipulated time period in the aforesaid direction issued by SEBI and the UPSE did not approve the amendments proposed by SEBI and Whereas the Board had vide its letter Ref no. SMD/POLICY/CIR-2/2002 dated January 10, 2002 issued an Order under Section 8 of Securities Contracts (Regulation) Act, 195.6 read with Section 4(3) of Securities and Exchange Board of India Act, 1992, directing all the recognised stock exchanges to suitably amend its Rules, Articles of Association etc., within a period of two months from the date of this Order to give effect to the decision taken by SEBI Board and the policy decision of Government in this regard and it was further informed that on failure by the exchange to comply with the above order within two months of the date of issue of the Order, SEBI may make the rules / amend the rules of the concerned stock exchanges in accordance with the provisions of the said Section 8; and in view of the failure of the Governing Board of UPSE to address the queries of the members and in view of the failure of UPSE to amend the articles of association of UPSE within the stipulated time and thereby comply with order dated 10.1.2002, SEBI is forced to notify amendments to article 112 of UPSE and Whereas most of the stock exchanges have amended their rules/articles of association to give effect to the order of 10.1.2002, and there is failure of UPSE to amend article 112, in the light of the above SEBI is of the opinion that in the interests of the investors and the capital markets, as also in public interest, it is necessary and expedient to amend the Article 112, in the manner indicated in this Order, inter-alia for the following reasons namely: (i) To expedite the corporatisation of stock exchanges by which ownership, management, and trading membership would be segregated from each other to improve institutional mechanism and trading practices in the stock markets. (ii) Moreover, the Board finds it desirable to maintain uniformity in the Rules, Regulations and Bye-laws regarding composition of the Governing Board of various stock exchanges in the country. Now, therefore in exercise of the powers conferred by Sub-section 2 of Section 8 of the Securities Contracts (Regulation) Act, 1956 read with the powers delegated to the Board by the SEBI under its notification no. S.O / 573(E) dated July 3, 1992 issued under Section 29A of the said Act, Securities and Exchange Board of India substitutes the existing Article 112 of the Articles of Association of UPSE, by the following new Article 112: 112. i. The president of the exchange shall be elected from amongst the members of the Board of Directors within 10 days after the conclusion of the annual general meeting, ii. The president appointed as above shall hold his office for one year and shall be eligible for re-election Provided that no member who has held the office of the president for two consecutive terms shall be eligible to offer himself for re-election unless the period of one year has elapsed since he last held such office and ; Provided that no broker member of the exchange shall be elected as President of the stock exchange. iii. The Vice President of the Exchange shall be elected from amongst the members of the Board of Directors within 10 days after the conclusion of the Annual Genera! Meeting. iv. The Vice-President appointed as above shall hold his office for one year and shall be eligible for re-election; Provided that no member who has held the office of the Vice-President for two consecutive terms shall offer himself for re-election unless a period of one year has elapsed since he last held such office and ; Provided that no broker member of the exchange shall be elected the Vice President of the stock exchange. [F. No. SEBI/LE/8579/2002] G.N. BAJPAI, Chairman