November 20, 1992

To the President/Executives of
All the Stock Exchanges

Dear Sir,

Restructuring of the exchange management

Please refer to our earlier letter no. SMD-II/8040/92 dated August 19, 1992 consulting the governing body of your Exchange (as per Section 8 of the Securities Contract (Regulation) Act) regarding the proposed reforms in the constitution of the Governing body, the disciplinary committee, arbitration committee and the default committee of the stock exchange and the changes with regard to the appointment and duties of the Executive Director. We have considered the views communicated by your Exchange in this regard. After consideration, Securities and Exchange Board of India has decided that under the powers granted to it under section 8 of the Securities Contract (Regulation) Act read with notification S.O. 574 (E), F. No.1(27) SE/92 dated 30th July, 1992 the stock exchange should be directed to amend their rules/articles of association in order to provide for the following :
i. The Governing Body of the Stock exchange shall consist of

a. 5 members of the Exchange elected through an election by the members of the Exchange;
b. one member of the Exchange nominated by SEBI;
c. persons not exceeding three appointed by the Central Government/SEBI as its representatives;
d. persons not exceeding three nominated as public representatives; and
e. executive director.

The nominees of Central Government and SEBI will not be subject to retirement and will hold office at the pleasure of the Central Government/SEBI as the case may be. *In case of Bombay Stock Exchange it would be permissible to have one representative of RBI out of (d) above who shall continue to be in the office at the pleasure of RBI and will not be subject to retirement.

The rules shall also provide that the public representatives would be nominated by SEBI after taking into consideration the recommendations of the Governing Body. SEBI will however have the freedom to appoint public representatives even if their names do not appear in the list of names recommended by the Governing Body. Such public representative shall continue to be in office till another person replacing him is appointed.

Suitable provisions shall be made to make the appointment of the Executive Director mandatory, if such provisions do not exist already.

ii. The rules should be amended to provide that the Executive Director shall be appointed only after approval by SEBI.

iii. The Executive Director shall not be removable except with the prior approval of SEBI.

iv. It shall be the duty of the Executive Director to implement all the directions, guidelines and orders of the Central Government/SEBI to implement any provisions of law or rules, bye laws and regulations of the Exchange. Rules should also provide that if the Executive Director fails to do so he shall be liable to be removed forthwith by SEBI without any consultation with the Governing Board/Council and after giving him an opportunity of being heard.

v.Suitable changes may be made in the provisions relating to the constitution of arbitration committee, default committee and disciplinary committee to provide for 40% members to be from the members of the stock exchange and 60% members to be from among non-members to be appointed with the approval of SEBI.

It is hereby directed that the above changes may be made in rules/articles of association of your Exchange to be effective from the date next elections are due. The draft of the amendments to the rules may be forwarded to us within a period of three months in order to enable us to approve the draft under the provisions of the Securities Contract (Regulation) Act.
Yours faithfully,

* this line is mentioned in BSE’s letter only.

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