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SMD/POLICY/Cir – 3 /03
January 30, 2003

The Executive Directors/Managing Directors/Administrators

BSE, DSE, ASE, MPSE, CSE, LSE, Madras SE, CoSE, BgSE, Magadh SE, PSE, HySE, Gauhati SE Coimbatore SE, SKSE, MgSE, VSE, JSE, OTCEI, ISE, UPSE & BhSE.

Dear Sir,

Sub: Corporatisation and Demutualisation of Stock Exchanges.

The Central Government has announced its proposal to corporatise the stock exchanges by which ownership, management and trading rights would be segregated from each other. Accordingly SEBI constituted a group headed by Justice M.H. Kania, former Chief Justice of India on Corporatisation & Demutualisation of Stock Exchanges in India. The Group has recommended corporatisation and demutualisation of the stock exchanges and the modalities thereof. A copy of the report of the Group on Corporatisation & Demutualisation of Stock Exchanges is enclosed as Annexure – A. The executive summary of the Report of the Group is enclosed as Annexure – B.

The report of the group on Corporatisation and Demutualisation along with the public comments was considered by the SEBI Board and was approved subject to the following –

While the existing members will be entitled to shares in the corporatised / demutualised stock exchanges in lieu of the existing rights, the voting rights of the shares held by the broker shareholder would be determined by SEBI in consultation with the Government of India.

The Board of the demutualised stock exchange will have equal representation of brokers, shareholders and investing public, except in the case of NSE where the present structure of the Board would be maintained. Thus, the broker shareholder of the demutualised exchange can have up to one-third representation on the Board of the stock exchange.

The names of all the directors including the broker directors to be appointed on the board of the demutualised exchanges will require the prior approval of SEBI.
All directors including broker directors will be on the Board of demutualised stock exchanges for a tenure to be determined by SEBI.

3. Some of the recommendation of the Group as approved by the SEBI Board would require legislative changes. SEBI has taken up the said proposal for legislative changes with the Central Government.

4. It is felt that to expedite the process for corporatisation and demutualization, the exchanges should be advised to frame a scheme for corporatisation and demutualization for approval of the SEBI. The stock exchanges may also consider the consequent changes in the rules, bye-laws, and articles of the exchange which may be required, to implement the scheme.

5. The exchanges are therefore advised to submit a scheme, together with changes in Rules, Bye-laws and Articles that would be required to implement the scheme, for approval to SEBI on the lines of the recommendations of the Justice Kania Group as approved by the SEBI Board, within six months from the date of this circular.

Yours faithfully,

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