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 ..... etter dated 23rd March 2005, SEBI 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as they generally have subsidiaries which are brokers. This is necessary to avoid any problems 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3 Board Composition: The corporatised and demutualised stock exchange will be functioning in a dual capacity i.e. as a Self Regulatory 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar rights and privileges, keeping in view the submissions of BSE and for limited purpose of facilitating the smooth transition, the Scheme 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 interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with this Scheme on and from the appointed date as may be notified by the Securities and Exchange Board of India (SEBI) in respect of BSE under Section 4A of the Securities Contracts (Regulation) Act, 1956. Provided 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 grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Act, 1992, the Depositories Act, 1996, the Securities Contracts (Regulation) Act, 1956, the Companies Act, 1956, the rules and regulations made under these Acts, the Rules, Bye-Laws and Regulations, 1957 or the Rules, Bye-laws and Regulations of the Derivatives Segment shall have the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehold rights, tenancy rights if any and all rights of nomination of former Members which have vested in BSE), powers, authorities, interests, privileges, exemptions, permissions, licenses, registrations and recognitions (including, in particular, the recognition of BSE as a recognized stock exchange under the Securities Contracts (Regulation) Act, 1956) of or belonging to or 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on being registered as a stock broker under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 within 3 months from the Due date. 8.3 A Trading Member and/or a Clearing Member of the Derivatives Segment of BSE on the day preceding the Due Date shall become a Trading Member and/or a Clearing Member of the Derivatives Segment of Bombay Stock Exchange Limited on the Due date. 8.4 After the Due Date, a person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public other than shareholders having trading rights continuously hold at least 51% of equity shares. 10.3 On and from Due Date, no Shareholder, who is a Trading Member, shall have voting rights (taken together with voting rights held by him and by persons acting in concert with him) exceeding 5% of the voting rights in Bombay Stock Exchange Limited. 11. Dissolution of BSE On and from the Due Date: (i) Bombay Stock Exchange Limited shall be entitled to, and shall, commence business 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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