Securities and Exchange Board of India (SEBI) has unveiled the Third Amendment to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018. The amendment is named as the “Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Third Amendment) Regulations, 2023” and will be effective from 22nd August 2023.
Key Highlights of the Amendment:
i. Modification in Regulation 20:
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- This regulation, which earlier dealt with the requirement and criteria of being a ‘fit and proper’ entity, has been completely overhauled.
- The criteria of a ‘fit and proper person’ now extends to recognized stock exchanges, recognized clearing corporations, their shareholders, directors, and key management personnel.
- This revised regulation provides detailed conditions that determine if an entity is a ‘fit and proper person’, covering aspects such as financial integrity, reputation, and prior convictions.
ii. Changes in Regulation 23:
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- In sub-regulation (14), linguistic adjustments have been made. The phrase “comprise of” has been replaced with “consist of” in the relevant clauses.
iii. Modification in Schedule II, Part B: A similar linguistic change has been made, replacing “comprises of” with “consists of” in clause (i) of sub-clause (ii).
Previous Amendments: Since its introduction in October 2018, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations has undergone multiple amendments. The latest is the ninth revision since the original regulation was released. Previous amendments were issued on specific dates ranging from June 2019 to July 2023.
Conclusion: This latest amendment by SEBI underscores its commitment to maintaining the highest standards of integrity and transparency within the securities market. Stakeholders, including stock exchanges and clearing corporations, are advised to review the changes in detail and ensure compliance.
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SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 22nd August, 2023
SECURITIES CONTRACTS (REGULATION) (STOCK EXCHANGES AND CLEARING CORPORATIONS) (THIRD AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/148.—In exercise of the powers conferred by sections 4, 8A and 31 of the Securities Contracts (Regulation) Act, 1956, read with sections 11 and 30 of the Securities and Exchange Board of India Act, 1992, the Board hereby makes the following regulations to further amend the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, namely:—
1. These Regulations may be called the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Third Amendment) Regulations, 2023.
2. They shall come into force on the date of their publication in the Official Gazette.
3. In the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, —
4. regulation 20 shall be substituted with the following, namely, –
“Requirement and criteria of fit and proper
20(1) (a) The ‘fit and proper person’ criteria shall apply to the applicant, recognised stock exchange, recognised clearing corporation, its shareholders, directors and key management personnel at all times.
(b) The recognised stock exchange or recognised clearing corporation shall ensure that all its shareholders, directors and key management personnel are fit and proper persons at all times.
(2) For the purpose of these regulations, an applicant, a recognised stock exchange or a recognised clearing corporation shall be deemed to be a fit and proper person, if –
(a) such a person has a general reputation and record of fairness and integrity, including but not limited to –
(i) financial integrity;
(ii) good reputation and character; and
(iii) honesty;
(b) such a person has not incurred any of the following disqualifications —
(i) conviction of the person by a court for any economic offence or an offence of the securities laws;
(ii) an Order for winding up has been passed against the person;
(iii) the person has been declared insolvent and has not been discharged;
(iv) an Order; restraining, prohibiting or debarring the person, from dealing in securities or from accessing the securities market, has been passed by the Board and a period of three years from the date of the expiry of the period specified in the Order has not elapsed;
(v) any other Order against the person which has a bearing on the securities market, has been passed by the Board and a period of three years from the date of the Order has not elapsed:
Provided that for the purpose of sub-clauses (iv) and (v), any Order passed by the Board, against a recognised stock exchange or recognised clearing corporation shall not affect the operation of such recognised stock exchange or recognised clearing corporation unless expressly mentioned in the Order.
(vi) the Board has initiated recovery proceedings under the Act or the Securities and Exchange Board of India Act, 1992 (15 of 1992) that are pending;
(vii) the person is not financially sound or has been categorized as a wilful defaulter; and
(viii) any other disqualification as may be specified by the Board from time to time.
(3) For the purpose of these regulations, the shareholders, directors or key management personnel of the recognised stock exchange or recognised clearing corporation, shall be deemed to be fit and proper if, –
(a) they fulfil the criteria specified under sub-regulation (2) of this regulation; and
(b) they have not been found to be of unsound mind by a court of competent jurisdiction and have not been declared a fugitive economic offender; and
(c) they have not been convicted of an offence involving moral turpitude.
(4) If any director or key management personnel of a recognised stock exchange or recognised clearing corporation is not deemed to be fit and proper under sub-regulation (3), the recognised stock exchange or recognised clearing corporation shall replace such a person within thirty days from the date of such disqualification, failing which the fit and proper person criteria may be invoked against the recognised stock exchange or recognised clearing corporation.
(5) Any disqualification of the recognised stock exchange or recognised clearing corporation under sub-regulation (2) shall not have any bearing on the fit and proper status of the directors or key management personnel unless the directors or key management personnel are also found to incur the same disqualification in the said matter.
(6) An order passed against the person by any other regulatory authority may be taken into account by the Board while determining the fit and proper person criteria.
(7) If any question arises on the decision of a recognised stock exchange or recognized clearing corporation as to whether a person is a fit and proper person, the decision of the Board on such question shall be final.”
II. In regulation 23, in sub-regulation (14),
(i) in clause (a), the words “comprise of”, wherever they occur, shall be substituted with the words “consist of”.
(ii) In the proviso to clause (b), the words “comprises of” shall be substituted with the words “consists of”
III. In Schedule II, in Part B, in Item I, in clause (i), in sub-clause (ii), the words “comprises of” shall be substituted with the words “consists of”.
BABITHA RAYUDU, Executive Director [ADVT.-III/4/Exty./367/2023-24]
Footnote:
1. The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 were published in the Gazette of India on 3rd October 2018 vide No. SEBI/LAD-NRO/GN/2018/41.
2. The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 were subsequently amended on–
(a) 4th June, 2019, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/21.
(b) 17th April, 2020, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020vide No. SEBI/LAD-NRO/GN/2020/10.
(c) 8th October, 2020, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/32.
(d) 23rd March, 2021, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/12.
(e) 13th August, 2021, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Second Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/44.
(f) 12th August 2022, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/93.
(g) 15th November, 2022, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Second Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/104.
(h) 2nd March, 2023, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/124.
(i) 24th July, 2023, by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Second Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/139.
