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December 20, 2001

The Executive Directors/Managing Directors of all the Stock Exchanges

Dear Sir,

Sub: Committee on Model Rule and Bye-laws of Stock Exchanges.

The Committee constituted by SEBI for examining the existing Articles and Memorandum of Association, Rules, Bye-laws and Regulations of Stock Exchanges and framing a uniform set of Rules and Bye-laws to be followed by all the stock exchanges of the country has submitted its report and the Model Rules for Stock Exchanges.

Some of the Model Rules have already been implemented by the Stock Exchanges through SEBI Circulars and directives. For some rules suitable provisions already exist in SC (R) Act, 1956, SC (R) Rules, 1957 or in the GOI directives/Circulars and SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 etc. Some of the Model Rules are new amongst which some are related to corporatisation 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/Circulars already issued in this regard will prevail.

Part ‘B’ gives reference to the rules in Model Rules and the subject matter, which are to be introduced by the stock exchanges.

Part ‘C’ gives reference to Model Rules. However introduction of these will have to await corporatisation/demutualisation of the stock exchanges.

Part ‘D’ gives reference to the Model Rules, which are related to the basic legal structure of the various stock exchanges and may require an amendment to the existing SEBI Act, 1992, SC (R) Act, 1956, SC (R) Rules, 1957 and other relevant Rules, Regulations and laws etc.

In order to bring about uniformity among stock exchanges and taking into account uniformity already brought about by SEBI through the directives/circulars so far issued to the stock exchanges, you are advised to implement the Rules under Part ‘B’. In the case of Rules in Part ‘A’, the proposed rules may be adopted in case there is a material difference between these rules and the existing similar rules of the exchange.

The Model Rules along with the Committee Report are enclosed for adoption after necessary approvals from the General Body/Governing Board of the Exchanges. However if there are any difficulties in implementation of these Rules, such difficulties may be brought to the notice of SEBI. A compliance report in this regard may be submitted to SEBI within 2 months.

The Exchanges will be suitably advised for introduction of Rules under Part ‘C’ and ‘D’ Yours faithfully,

S.V. Muralidhar Rao

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