SR. EXECUTIVE DIRECTOR
April 20, 1993
Coimbatore/Bhubaneshwar Stock Exchanges
Order under Sec 8 of the SC[R] Act, 1956
Please refer to the earlier correspondence on the subject resting with our letter no. SMD/SED/0049/93 dated January 1, 1993. The Board after taking into account suggestions made by various stock exchanges has decided to direct the stock exchanges to amend the rules or Articles of Association in respect of various matters including those relating to the constitution of the governing bodies of the stock exchanges. A statutory directive dated April 19, 1993 issued by the Board is enclosed for necessary action at an early date and in any case not later than six months from the date of the order.
While making the proposed amendments please ensure to make consequential amendments to the Rules/Articles of Association. The draft of the proposed amendments may be sent to us for approval.
Please acknowledge receipt.
C. B. BHAVE
SECURITIES AND EXCHANGE BOARD OF INDIA
Order under Section 8 of the SCRA Act
1. With a view to protect the interest of investors and to promote development of and to regulate the securities market and in particular the stock exchanges in terms of Section 11 of the Securities and Exchange Board of India Act, 1992 and further pursuant to sub-section (1) of Section 8 of the Securities Contracts (Regulation) Act (hereinafter referred to as the Act) and the powers delegated by the Central Government under its notification no. SO/573(E) dated July 3, 1992 issued under 29 A of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India (hereinafter referred to as ” the Board”) had through its communication dated August 19, 1992 consulted the stock exchanges on certain specific issues relating to the reconstitution of the governing bodies of the stock exchanges (hereinafter referred to as “governing bodies”), the appointment of Executive Directors including the constitution of disciplinary, arbitration and default committees of the stock exchanges; AND
2. After taking into account, the views expressed by several stock exchanges, the Board by its communication dated November 20, 1992 advised all the stock exchanges to take steps to amend their Rules or Articles of Association; AND
3. In response to the said communication dated November 20, 1992, while several stock exchanges have expressed their willingness to carry out the amendments to their respective Rules and Articles of Association, others have either suggested modifications or opposed or shown reluctance to carry out such amendments; AND
4. By a further communication dated January 1, 1993 the Board had proposed specific terms of office for President and Vice-President of the Stock Exchanges, AND
5. The Board has since considered various proposals in the light of further suggestions received from the stock exchanges pursuant to above mentioned communications and it is of the opinion that in interest of the investors and the capital market as also in the public interest , it is necessary and expedient to amend the Rules or Articles of Association, as the case may be, of the stock exchanges in the manner indicated in this Order for the following reasons namely :
(i) The governing bodies as constituted at present have failed to effectively and promptly implement the directives issued by the Central Government;
(ii) Some governing bodies have shown reluctance or indifference or have failed to take adequate steps for the appointment of Executive Director;
(iii) The disciplinary, arbitration and default committees as constituted at present have failed to take quick, effective or timely action against erring brokers;
(iv) The governing bodies as constituted at present have failed to enforce the Articles of Association, Rules, Regulations and Bye-laws of the stock exchanges;
(v) It is a matter of common knowledge that when some members get elected on the governing board including as President or Vice-President or as members for several years they get into a position whereby they can exert excessive influence in the affairs of the stock exchange which is not desirable in the public interest;
(vi) There is a need to broad base the membership of the governing bodies, and make them fully representative of various interests in the securities market in order to ensure that the affairs of the stock exchanges are conducted on healthy lines with the highest standards of professional conduct, business ethics and morality to inspire and sustain the confidence of the investing public.
NOW THEREFORE in exercise of the powers conferred by sub-section (1) of Section 8 of the Securities Contracts (Regulation) Act, 1956, read with the powers delegated to the Board by the Central Government under section 29A of the said Act, the Board hereby directs all the recognised stock exchanges, more particularly mentioned in the Schedule hereunder written, to take steps, immediately but in any case not later than six months from the date of this Order, for amendment of their respective Rules or Articles of Association, as the case may be, be provide for the following matters :-
1. Unless otherwise agreed to by the Board, the governing body of a stock exchange, shall normally comprise of 13 members and shall be constituted as follows:
i. six members of the stock exchange to be elected by the members of the stock exchange.
ii. not more than three members to be nominated by the Central Government or the Board in accordance with the Act;
iii. three public representatives to be nominated by the Board;
Provided that the Board may at any time appoint public representatives more than three so that the total number of members nominated under this clause and clause (ii) above may not exceed the total number of elected members under clause (i) above;
iv.one Executive Director to be appointed by the stock exchange.
One-third of the elected members under clause 1( I) shall retire at each annual general meeting and shall be eligible to offer themselves for re-election.
Provided, that where a person has been a member elected for two consecutive terms on the governing body he shall not offer himself for re-election for a further period of two years.
2. The members to be appointed under clause 1(ii) above, shall not be subject to retirement by rotation and shall hold the office at the pleasure of the Central Government or the Board as the case may be.
3. (i) Public Representatives to be nominated under clause 1(iii) above shall be from amongst the persons of integrity having necessary professional competence and experience in the areas related to securities markets;
(ii) For purposes of nomination as public representatives, the governing body of the stock exchange may forward the names of persons to the Board for such nomination. The Board shall, however have the right to nominate persons, whose names have not been forwarded by the governing body of the stock exchange.
(iii)The public representatives to be nominated on the governing body shall hold the office for a period of one year from the date of assumption of the office or till the Annual General Meeting whichever is earlier.
4. (i) The President of a stock exchange shall be elected from amongst the members of the governing body within ten days after the conclusion of the Annual General Meeting and no approval from the Central Government or the Board would be required for appointment of any person as the President.
(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 a period of one year has elapsed since he last held such office.
(iii) The Vice-President of a stock exchange shall be elected from amongst the members of the governing body within ten days after the conclusion of the Annual General Meeting and no approval of the Central Government or the Board would be required for appointment of any person as the Vice President.
(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.
5. The appointment, the terms and conditions of service, the renewal of appointment and the termination of service of an Executive Director shall be subject to prior approval of the Board.
6. The Rules or Article of Association, as the case may be, of the stock exchange shall provide that besides the governing body, it shall be the duty of the Executive Director to give effect to the directives, guidelines and orders issued by the Board in order to implement the applicable provisions of law, rules, regulations as also the Rules or the Articles of Association, Regulations and Bye-laws of the stock exchange.
Any failure in this regard will make him liable for removal or termination of service by the stock exchange with the prior approval of the Board or on receipt of direction to that effect from the Board, subject to the concerned Executive Director being given an opportunity of being heard against such termination.
7. The Rules or Articles of Association, as the case may be, shall provide for nomination of not more than forty percent of the members of the exchange on the arbitration, disciplinary and default committees and the balance sixty percent shall be nominated on the said committees from persons other than members of the stock exchange with the prior approval of the Board.
8.The members presently constituting the governing body shall; immediately after the amendment of the Rules or Articles of Association, as the case maybe or after the issue of an order by the Board under sub-section (2) of Section 8 of the Act, retire to the extent necessary in order to ensure that the composition of the governing body as reconstituted, is in conformity with the Rules or Articles of Association as the case may be.
For purposes of this requirement, the members, who have been longest in the office since their last appointment, shall retire. In respect of the members, who were appointed on the same day, the persons, who shall retire may be determined by agreement or lots.
Dated at Bombay this 20th day of April, 1993.
SECURITIES AND EXCHANGE BOARD OF INDIA
1. The Stock Exchange, Bombay
2. The Delhi Stock Exchange Association Ltd
3. The Calcutta Stock Exchange Ltd
4. The Ahmedabad Stock Exchange Association Ltd
5. Madras Stock Exchange Ltd
6. The Ludhiana Stock Exchange Association Ltd
7. The Uttar Pradesh Stock Exchange Ltd
8. Jaipur Stock Exchange Ltd
9. The Magadh Stock Exchange Ltd
10. The Gauhati Stock Exchange Ltd
11. Madhya Pradesh Stock Exchange Ltd
12. Saurashtra-Kutch Stock Exchange Ltd
13.Vadodara Stock Exchange Ltd
14. Pune Stock Exchange Ltd
15. Bhubaneshwar Stock Exchange Association Ltd
16. Bangalore Stock Exchange Ltd
17. Kanara Stock Exchange Ltd
18. Cochin Stock Exchange Ltd
19. The Hyderabad Stock Exchange Ltd
20. The Coimbatore Stock Exchange Ltd.