SECURITIES AND EXCHANGE BOARD OF INDIA
Notification No. SEBI/LAD-NRO/GN/2023/124 Dated : 28th February, 2023
SECURITIES CONTRACTS (REGULATION) (STOCK EXCHANGES AND CLEARING CORPORATIONS) (AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/124.—In exercise of the powers conferred by sections 4, 8A and 31of 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) (Amendment) Regulations, 2023.
2. They shall come into force on the one hundred and eightieth day from the date of their publication in the Official Gazette.
3. In the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018,—
I. in regulation 2, in sub-regulation (1),
i. Clause (j) shall be substituted with the following, namely,-
“(j) “key management personnel” shall include:
i. any person appointed as the managing director or executive director; or
ii. a person serving as the head of a department or vertical and directly reporting to the managing director or to the directors on the governing board of the recognised stock exchange or recognised clearing corporation; or
iii. a person serving as the head of a core function as specified under Part–C of Schedule–II of these regulations.; or
iv. a person who stands higher in hierarchy to the head of any department(s) handling core function(s) in the recognised stock exchange or recognised clearing corporation; or
v. reporting officials of key management personnel; or
vi. any person defined as a “key managerial personnel” under the Companies Act, 2013; or
vii. any other person who is a key decision making authority at the level of the recognised stock exchange or recognised clearing corporation or its direct or indirect material subsidiaries, as identified by the managing director or its Nomination and Remuneration Committee:
Provided that in the case of a subsidiary of a recognised stock exchange or a recognised clearing corporation that is regulated by a financial sector regulator; the norms specified by such a regulator may be considered for determining as to whether the person at the subsidiary is designated as a key management personnel;”
ii. after clause (k) and before clause (l), the following clause shall be inserted, namely,-
“(ka) “non-independent director” means a director elected or nominated by the shareholders who are neither trading members nor clearing members, as the case may be, or their associates and agents;”
iii. clause (t) shall be omitted.
II. after regulation 10 and before regulation 11, the following regulation shall be inserted, namely,-
“Code of conduct for recognised stock exchanges and recognised clearing corporations 10A. Every recognised stock exchange and recognised clearing corporation shall abide by the Code of Conduct as specified under Part-A of Schedule-II of these regulations.”
III. in regulation 23,
i. in clause (a) of sub-regulation (1), the proviso to sub-regulation (1), sub-regulation (3), sub-regulation (4), the proviso to sub-regulation (4), sub-regulation (5), sub-regulation (10) and sub-regulation (11), the words “shareholder directors” shall be substituted with the words and symboJznd recognised clearing corporation shall comprise of at least one public interest director having the requisite qualification and experience in each of the areas of capital markets, finance and accountancy, legal and regulatory practice, and technology.
(b) The recognised stock exchange and recognised clearing corporation may also appoint directors having qualification and experience in other areas which may be specific to them:
Provided that the recognised stock exchange and recognised clearing corporation shall ensure that the governing board collectively comprises of directors with qualifications and experience as specified at clause (a) above.”
IV. after regulation 23 and before regulation 24, the following regulation shall be inserted, namely,-
“Nominees of the Board on the governing board of a recognised stock exchange and recognised clearing corporation.
23.A The Board may appoint one or more persons not exceeding three in number, as director(s) on the governing board of any recognised stock exchange or recognised clearing corporation and such director(s) shall enjoy the same status and power as the other directors of the governing board.”
V. in regulation 24,
i. in sub-regulation (1) and sub-regulation (6) the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors”.
ii. in sub-regulation (2), the words “nominated by” shall be substituted with the words “appointed with the prior approval of”.
iii. in sub-regulation (3),
(a) the word “nominated” shall be substituted with the word “appointed”.
(b) in the first proviso, the words “nominated” shall be substituted with the words “appointed with the prior approval of the Board”.
(c) in the second proviso, the word “nominated” shall be substituted with the word “appointed” and the symbol “/” shall be substituted with the word “or”.
VI. in regulation 25, in sub-regulation (3), in the second proviso, the words “of two terms not exceeding five years each” shall be substituted with the words “period of ten years”.
VII. in regulation 26,
i. The heading shall be substituted with the following, namely,-
“Code of Conduct for the governing board, directors, committee members and key management personnel”
ii. sub-regulation (1) shall be substituted with the following, namely,-
“(1) The governing board, directors, committee members and key management personnel of a recognised stock exchange and recognised clearing corporation shall abide by the Code of Conduct specified under Part-B of Schedule-II of these regulations.”
iii. sub-regulation (2) shall be omitted.
iv. sub-regulation (4) shall be omitted.
VIII. regulation 28 shall be substituted with the following, namely,-
“Segregation of functions
28. (1) Every recognised stock exchange and recognised clearing corporation shall identify its functions and segregate them into the following verticals:
(a) Critical Operations;
(b) Regulatory, Compliance, Risk Management and Investor Grievances; and
(c) Other functions including business development.
(2) The functions of the verticals under sub-regulation (1) above are provided at Part C of Schedule II of these regulations.
(3) The functions under the verticals as provided at clause (a) and (b) of sub-regulation (1) shall be given higher priority in terms of resource allocation by the recognised stock exchange and recognised clearing corporation over the functions under the vertical as provided at clause (c) of sub-regulation (1).
(4) Every recognised stock exchange and recognised clearing corporation shall periodically and objectively assess the adequacy of resources allocated to the first two verticals as specified in sub-regulation (1).
(5) Every recognised stock exchange and recognised clearing corporation shall adopt a “Chinese Wall” policy which separates the functions under vertical as provided at clause (b) of sub-regulation (1) from the functions of other verticals.
(6) The employees referred to in sub-regulation (5) shall not communicate any information concerning their activity to any one in other verticals and may be physically segregated from employees in other verticals including with respect to access controls:
Provided that in exceptional circumstances, employees from other verticals may be given confidential information on “need to know” basis, under intimation to the compliance officer.”
IX. in regulation 29,
i. in sub-regulation (1), the word “and ” shall be substituted with the symbol “,” and after the words and symbol “sub-regulation (3)”, the words and symbol “and sub-regulation 3A” shall be inserted.
ii. in sub-regulation (2), after the words and symbol “fund committee;” the word “and” shall be inserted.
iii. in sub-regulation (2), clause (b) shall be omitted.
iv. in sub-regulation (3), clause (b) shall be omitted.
v. after sub-regulation (3), the following sub-regulation shall be inserted, namely,-“(3A) Investment Committee.”
vi. Sub-regulation (4) shall be substituted with the following, namely,-
“(4) The composition, quorum and functions of the committees under sub-regulation (2), (3) and sub-regulation (3A) shall be in the manner as specified by the Board from time to time.”
X. after regulation 29 and before regulation 30, the following regulation shall be inserted, namely,-
“Grievance Redressal Panel
29A. Every recognised stock exchange and recognised clearing corporation shall have Grievance Redressal Panel(s) to resolve investor grievances which shall function in the manner as may be specified by the Board.”
XI. in regulation 30, after sub-regulation (2), the following sub-regulation shall be inserted, namely,-
“(3) The compliance officer shall submit a report of any non-compliance of the Act, the Securities and Exchange Board of India Act, 1992, rules, regulations, circulars or directions issued thereunder and for the redressal of investors’ grievances, to the Board on a quarterly basis in the manner as may be specified by the Board.”
XII. after regulation 30, and before regulation 31, the following regulation shall be inserted, namely,-
“Appointment of the chief risk officer
30A. (1) Every recognised stock exchange or recognised clearing corporation shall appoint a chief risk officer to identify, monitor and initiate necessary steps to mitigate the risk associated with the functioning of a recognised stock exchange or recognised clearing corporation.
(2) The chief risk officer shall be responsible for the overall risk management of the recognised stock exchange or recognised clearing corporation and submit a report to the Board on a half-yearly basis.”
XIII. in regulation 33, after sub-regulation (4), the following sub-regulations shall be inserted, namely,-
“(5) Every recognised stock exchange and recognised clearing corporation shall internally conduct annual evaluation of its performance and the performance of its statutory committees in such a manner as may be specified by the Board.
(6) Every recognised stock exchange and recognised clearing corporation shall also appoint an independent external agency to evaluate its performance and the performance of its statutory committees within such periodicity and in such a manner as may be specified by the Board.
(7) Every recognised stock exchange and recognised clearing corporation shall disclose, on their website, the agenda and minutes of its governing board meetings pertaining to regulatory, compliance, risk management and investor grievance areas, after approval of such minutes.
(8) If any director or key management personnel is or becomes aware of any act of wrongdoing at the recognised stock exchange or recognised clearing corporation and fails to report about it to its governing board or to the Board, such a person may be liable for action under these regulations, after providing him a reasonable opportunity of being heard.”
XIV. in regulation 38,
i. after sub-regulation (2), the following sub-regulations shall be inserted, namely,-
“(3) An employee of a recognised stock exchange or recognised clearing corporation shall not simultaneously be an employee of any other company where the recognised stock exchange or recognised clearing corporation has invested.
(4) A director, committee member or employee of a recognised stock exchange or a recognised clearing corporation shall not receive any compensation or any other financial benefit from the companies where the recognised stock exchange or recognised clearing corporation has invested, other than fees and expenses related to the governing board and committee meetings”.
XV. after regulation 39 and before regulation 40, the following regulation shall be inserted, namely,-
“Information and Data Sharing Policy
39A. (1) Every recognised stock exchange and recognised clearing corporation and the company where the recognised stock exchange or recognised clearing corporation has invested shall lay down a framework for sharing and monitoring of data, including confidential and sensitive data.
(2) The policy framework shall contain: –
(a) means and manner of data sharing;
(b) types of data that can be shared;
(c) escalation matrix for data sharing;
(d) provisions to have a digital database for recording details of information shared along with recipients and reasons for sharing, etc.;
(e) mechanism to monitor the data shared, through use of technology, including periodic audits to ensure compliance with the policy framework; and
(f) accountability mechanism including fixing individual accountabilities for any breach of data sharing policy.”
XVI. in regulation 40, sub-regulation (1) shall be substituted with the following, namely,-
“(1) Every recognised stock exchange shall maintain and preserve the following books of account and documents for a minimum period of eight years, namely: –
(a) Minute books of the meetings of—
(i) members;
(ii) governing body;
(iii) any standing committee or committees of the governing body or of the general body of members.
(b) Register of members showing their full names and addresses and where any member of the stock exchange is a firm, full names and addresses of all partners.
(c) Register of authorised clerks.
(d) Register of remisiers of authorised assistants.
(e) Record of security deposits.
(f) Margin deposits book.
(g) Ledgers.
(h) Journals.
(i) Cash book.
(j) Bank pass-book.
(k) Such other books of accounts and documents as may be specified by the Board from time to time.”
XVII. in regulation 49,
i. the heading shall be substituted with the following, namely,-
“Power to issue directions and levy penalty.”
ii. The existing regulation shall be re-numbered as sub-regulation (1) and after the renumbered regulation, the following shall be inserted, namely,-
“(2) The Board may take action against a recognised stock exchange or recognised clearing corporation, director, committee member, key management personnel, employee or any other person associated with the recognised stock exchange or recognised clearing corporation, for any contravention or abetting the contravention of these regulations, including the Code of Conduct specified under these regulations, the provisions of the Act, the Securities and Exchange Board of India Act, 1992, any rules or regulations framed thereunder and any circulars or directions issued by the Board, either upon a reference or suo motu, as it deems fit, including but not limited to any or all of the following:—
(a) debarring a recognised stock exchange or recognised clearing corporation from introducing new products and services and restricting its existing activities, products and services.
(b) imposing such monetary penalty as may be determined by the Board, on the recognised stock exchange or recognised clearing corporation, directors, committee members, key management personnel, employees or any other person associated with the recognised stock exchange or recognised clearing corporation.
(c) restricting any such person to attend meetings or otherwise participate or involve themselves in the functioning of the recognised stock exchange and recognised clearing corporation.
Explanation– For the removal of any doubt, it is clarified that the power of the Board to take appropriate action under sub-regulation (2) is without prejudice to the exercise of its powers under the provisions of the Act, or the Securities and Exchange Board of India Act, 1992 and the rules and regulations made thereunder:
Provided that the Board while taking action under clauses (a) and (b) above shall have due regard to the factors, including but not limited to any or all of the following:—
(i) a mala fide intent; or
(ii) an act of commission or an act of omission; or
(iii) negligence, or
(iv) repeated instances of genuine decision making that went wrong.
(3) While adjudging the quantum of monetary penalty under the Act, or the Securities and Exchange Board of India Act, 1992, the Board shall have due regard to the factors, including but not limited to any or all of the following:—
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to the recognised stock exchange or recognised clearing corporation or the securities market as a result of the default; and
(c) the repetitive nature of the default.”
XVIII. after regulation 50 and before regulation 51 the following regulation shall be inserted, namely “Power to relax the strict enforcement of the regulations.
50A (1) The Board may suo motu or upon an application made by a recognised stock exchange or recognised clearing corporation, for reasons recorded in writing, grant relaxation from the strict compliance of any of the provisions of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market, if the Board is satisfied that:
(a) the non-compliance is caused due to factors beyond the control of the entity; or
(b) the requirement is procedural or technical in nature.
(2) The recognised stock exchange or recognised clearing corporation making an application referred to under sub-regulation (1) shall pay a non-refundable fee of rupees one lakh payable by way of direct credit in the bank account through NEFT/ RTGS/ IMPS or online payment using the SEBI payment gateway or any other mode as may be specified by the Board from time to time.”
XIX. in Schedule–II,
i. Part-A and Part-B shall be substituted with the following, namely,-
“Part-A
[See regulation 10A]
Code of Conduct for Stock Exchanges and Clearing Corporations
A recognised stock exchange and a recognised clearing corporation shall:
(a) always abide by the provisions of the Act, Securities and Exchange Board of India Act, 1992, any Rules or Regulations framed thereunder, circulars, guidelines and any other directions issued by the Board from time to time.
(b) adopt appropriate due diligence measures.
(c) take effective measures to ensure implementation of risk management framework and good governance practices.
(d) take appropriate measures towards investor protection and education of investors.
(e) treat all its applicants or members in a fair and transparent manner.
(f) promptly inform the Board of violations of the provisions of the Act, Securities and Exchange Board of India Act, 1992, rules, regulations, circulars, guidelines or any other directions by any of its members or issuer.
(g) take a proactive and responsible attitude towards safeguarding the interests of investors, integrity of stock exchange’s or clearing corporation’s systems and the securities market.
(h) endeavor for introduction of best business practices amongst itself and its members.
(i) act in utmost good faith and shall avoid conflict of interest in the conduct of its functions.
(j) not indulge in unfair competition, which is likely to harm the interests of any other stock exchange or clearing corporation, their members or investors or is likely to place them in a disadvantageous position while competing for or executing any assignment.
(k) Segregate roles and responsibilities of key management personnel within the stock exchange and clearing corporation including
i. Clearly mapping legal and regulatory duties to the concerned position
ii. Defining delegation of powers to each position
iii. Assigning regulatory, risk management and compliance aspects to business and support teams
(l) be responsible for the acts or omissions of its employees in respect of the conduct of its business.
(m) monitor the compliance of the rules and regulations by the members and shall further ensure that their conduct is in a manner that will safeguard the interest of investors and the securities market.
Part-B
[See regulation 26(1)]
Code of Conduct for governing board, directors, committee members and key management personnel
I. Governing Board
The governing board of the recognised stock exchange and recognised clearing corporation shall-
a) evaluate profitability margins of the stock exchanges or clearing corporations.
b) ensure adequacy of resource allocation (both financial and human) towards regulatory compliances.
c) focus on strategy, policy level issues and important matters and may review the day-to-day operational matters only in exceptional cases.
d) oversee the critical operations including technology as well as the regulatory, risk management, compliance and investor grievance redressal functions of the stock exchange or clearing corporation.
e) take the lead in succession planning for the managing director and other key positions.
f) play an active role in defining, establishing and documenting risk management framework, covering risk appetite or risk tolerance policy of the stock exchange or clearing corporation and ensure that the policy contains the following:-
i. role of risk appetite in key processes
ii. clear quantitative metrics and thresholds to monitor performance of the stock exchange’s or clearing corporation’s risk appetite
iii. acceptability of breaches and trigger response(s), if any.
iv. zero tolerance for areas such as cyber security, system stability, surveillance, fair access, fraud or corruption, compliance, etc.
g) make key stakeholders (executive and non-executive) aware of the use and value of risk appetite across the organization (including implications of breaches) and review and approve risk appetite metrics and thresholds periodically.
h) ensure adequate independence of key functions such as regulatory and control functions (risk management, compliance and audit functions) such that;
i. regulatory and control functions have sufficient stature to perform their tasks effectively.
ii. regulatory and control functions operate independently and have appropriate direct access to the governing board of the stock exchange and clearing corporation and senior management.
iii. control functions are proactively involved in all relevant decisions and activities.
i) Provide for three lines of defense construct where:
i. the first line of defense incorporates business units and support functions as it has the responsibility to own and manage risks associated with day to day operational activities.
ii. the second line of defense comprises of various oversight functions i.e., regulatory, risk management, compliance teams, and
iii. the third line of defense comprises the internal audit function.
j) ensure that the roles and responsibilities of management in relation to three lines of defense are clearly specified and understood and that all employees are responsible for the regulatory, risk management and compliance outcomes.
k) ensure a culture of effective communication and challenge (i.e., encourage alternate views or questions from individuals and groups) and value and respect it.
l) ensure that any new product, service, revenue stream is examined by the concerned department of the stock exchange or clearing corporation from the compliance and risk management perspectives in addition to normal viability issues before approving the same.
m) review periodically all existing products, services and revenue streams.
n) shall meet, without the presence of the managing director and any other executive director, the chief regulatory officer or compliance officer, the chief risk officer, the chief information security officer, the statutory auditor of the stock exchange and clearing corporation and any other person as determined by the public interest directors and non-independent directors to discuss important issues concerning the stock exchange and clearing corporation, on a periodic basis as specified by the Board.
o) periodically review the frequency of meetings and agenda items of the governing board and statutory committees to ensure that the number of meetings is rationalized and all important issues are discussed.
p) ensure that the agenda papers are approved by the Chairman of the governing board.
q) ensure that members of the governing board can place agenda item during their meeting.
r) be responsible for monitoring compliance with the code of conduct by the directors of the stock exchange and clearing corporation.
s) uphold a strong culture in the stock exchange or clearing corporation and promote target culture from the top through behaviour, actions and effective communication.
t) communicate the guiding principles for institution’s target regulatory, compliance, risk and conduct culture.
u) endeavor that the stock exchange and clearing corporation put in place key elements related to culture such as:
i. adequate training programs to help employees better understand expectations of behavior (for example, trainings on dilemmas);
ii. mechanisms to measure and track indicators related to culture at regular intervals;
iii. accountability mechanisms; and
iv. performance management mechanisms which take into account adherence to culture, conduct and behavior related dimensions.
II. Code of Conduct for directors, committee members and key management personnel
A. Applicable to directors, committee members and key management personnel of stock exchange and clearing corporation:
1. General Responsibility.
Every director, committee members and key management personnel of the recognised stock exchanges or recognised clearing corporations shall—
(a) analyse and administer the stock exchanges’ and clearing corporations’ issues with professional competence, fairness, impartiality, efficiency and effectiveness;
(b) submit the necessary disclosures, statement of holdings, dealings in securities as required by the stock exchanges and clearing corporations from time to time as per their rules, bye-laws or articles of association;
(c) unless otherwise required by law, maintain confidentiality and not divulge or disclose any information obtained in the discharge of their duty and no such information is used for personal gains;
(d) maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of their duties in order to inspire public confidence and not engage in acts discreditable to their responsibilities;
(e) perform their duties in an independent and objective manner and avoid activities that may impair, or may appear to impair, their independence or objectivity or official duties;
(f) perform their duties with a positive attitude and constructively support open communication, creativity, dedication, and compassion;
(g) not engage in any act involving moral turpitude, dishonesty, fraud, deceit, or misrepresentation or any other act prejudicial to the administration of the stock exchanges and clearing corporations;
(h) promote greater awareness and understanding of ethical responsibilities;
(i) in the conduct of their business, observe high standards of commercial honour and; just and equitable principles of trade;
(j) be exemplary in their conduct in business life which may set a standard for others;
(k) not use their position to give or receive favours to or from the executive or administrative staff of the stock exchange or clearing corporation, technology or service providers and vendors or suppliers of the stock exchange and clearing corporation, or any listed company at the stock exchange or any issuer company admitted by the stock exchanges and clearing corporations;
(l) not commit any act which will put the reputation of the stock exchanges or clearing corporations in jeopardy;
(m) comply with the provisions of all applicable laws pertaining to the securities market;
(n) directors and key management personnel shall at all point of time comply with all the internal policies of the stock exchange and clearing corporation including their code of conduct. If there is a conflict between the code of conduct policy of the stock exchange or clearing corporation with those provided by the Board, then the policy issued by the Board shall prevail.
2. Regulatory Compliances.
Every director, committee member and key management personnel of the recognised stock exchange or recognised clearing corporation shall—
(a) ensure that the stock exchange or clearing corporation abides by all the applicable provisions of the Act, the Securities and Exchange Board of India Act, 1992, rules and regulations framed thereunder and the circulars, directions or any other instructions issued by the Board from time to time;
(b) ensure compliance at all levels so that the regulatory system does not suffer any breaches;
(c) ensure that the stock exchange or clearing corporation takes steps commensurate to honour the time limit stipulated by Board for corrective action.
3. Disclosures of Beneficial Interest.
All directors, committee members and key management personnel shall disclose to the governing board of recognised stock exchange or recognised clearing corporation, upon assuming office and during their tenure in office, whenever the following arises:—
(a) any fiduciary relationship of self and family members and directorship or partnership of self and family members in any trading member or clearing member or depository participant or registrar and transfer agent;
(b) shareholding, in cases where the shareholding of the director or key management personnel, directly or through his family exceeds 5 percent in any listed company or in other entities related to the securities markets;
(c) any other business interests.
4. Access to Information.
(a) There shall be prescribed channels through which information shall move and further there shall be audit trail of the same. Any retrieval of confidential documents or information shall be properly recorded.
(b) All such information, especially which is non-public and price sensitive, shall be kept confidential and not be used for any personal consideration or gain.
(c) Any information relating to the business or operations of the stock exchange or clearing corporation, which may come to the knowledge of directors or committee members or key management personnel during performance of their duties shall be held in strict confidence, shall not be divulged to any third party and shall not be used in any manner except for the performance of their duties.
(d) Directors shall call for information only as part of specific committees or as may be authorised by the governing board of stock exchange or clearing corporation.
5. Misuse of Position.
Directors or committee members or key management personnel shall not use their position to obtain business or any pecuniary benefit in the organization for themselves or family members.
B. Applicable to the Directors and Committee Members
1. Meetings and Minutes.
The directors and committee members of the recognised stock exchange or recognised clearing corporation shall—
(a) not participate in discussions on any subject matter in which any conflict of interest exists or arises, whether pecuniary or otherwise and in such cases the same shall be disclosed and recorded in the minutes of the meeting;
(b) not encourage the circulation of agenda papers during the meeting, unless circumstances so require;
(c) ensure that minutes are recorded to capture all points of opinion comprehensively;
(d) offer their comments on the draft minutes and ensure that the same are incorporated in the final minutes;
(e) insist on the minutes of the previous meeting being placed for approval in subsequent meeting;
(f) endeavor to have the date of next meeting fixed at each governing board meeting and committee meetings respectively in consultation with other respective members of the governing board and committees;
(g) ensure that all important agendas placed before the governing board of stock exchange and clearing corporation and committees are deliberated in a timely manner;
(h) not support any decision in the meeting of the governing board of stock exchange and clearing corporation and the committees respectively which may adversely affect the interest of investors and shall report forthwith any such decision to the Board.
2. Role of the directors and committee members in the day to day functioning of the recognised stock exchange and recognised clearing corporation.
(a) The directors and committee members shall not interfere in the day to day functioning of the stock exchange or clearing corporations and shall limit their role to decision making on policy issues and to issues as the governing board of stock exchange and clearing corporation may decide.
(b) The directors and committee members shall abstain from influencing the employees of the stock exchange and clearing corporations in conducting their day to day activities.
(c) The directors and committee members shall not be directly involved in the function of appointment and promotion of employees unless specifically so decided by the governing board of stock exchange and clearing corporation.
3. Avoidance of Conflict of Interest.
(a) No director or committee member of the stock exchange or clearing corporation shall participate in any decision making or adjudication in respect of any person or matter in which he or she is in any way, directly or indirectly, concerned or interested.
(b) Conflict of interest in a matter, if any, shall be decided by the governing board of the stock exchange and clearing corporation.
4. Strategic Planning.
Every director and committee member of the recognised stock exchange and recognised clearing corporation shall—
(a) participate in the formulation and execution of strategies in the best interest of the stock exchange and clearing corporation and contribute towards pro-active decision making at the governing board level;
(b) give benefit of their experience and expertise to the stock exchange and clearing corporation and provide assistance in strategic planning and execution of decisions;
(c) place priority for redressing investor grievances and encouraging fair trade practice so that the stock exchange and clearing corporation becomes an engine for the growth of the securities market.
5. Disclosure of dealings in securities by Directors of the recognised stock exchange and recognised clearing corporations.
(a) All transactions or dealings in securities by the directors and their immediate relatives (as defined in the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015) shall be disclosed to the governing board of the stock exchange or clearing corporation.
(b) All directors shall also disclose the trading conducted by firms or corporate entities in which they hold twenty percent or more beneficial interest or hold a controlling interest, to the stock exchange or clearing corporation.
(c) The details including time period for disclosures stated above shall be provided by the stock exchange and clearing corporation, provided that the time period for disclosure shall not be later than fifteen days of the transaction/ dealing.
(d) Directors who are nominees of Government of India, its statutory bodies or Public Financial Institutions and are governed by their own codes shall be exempt from this requirement.
C. Applicable to Public Interest Directors
(a) Public Interest Directors of the stock exchange and clearing corporations shall endeavor to attend all the governing board meetings and they shall be liable to vacate office if they remain absent for three consecutive meetings of the governing board or do not attend seventy-five percent of the total meetings of the governing board in a calendar year.
(b) Public interest directors shall meet separately, at least once in six months to exchange views on critical issues. Public interest directors shall submit a report of such meeting to the Board and to the governing board of the recognised stock exchange and recognised clearing corporation within the time and manner as may be specified by the Board from time to time.
(c) Public interest directors shall identify important issues which may involve conflict of interest for the stock exchange and clearing corporation or may have significant impact on the functioning of the stock exchange and clearing corporation or may not be in the interest of securities market. The same shall be reported to the Board in a time bound manner.
(d) Public interest directors shall have regular oversight on observations of Board’s inspection particularly on issues of governance standards, technology and cyber security and system audit and cyber security audit observations.
(e) Public interest directors should be proactive in identifying any issues concerning functioning of stock exchange or clearing corporations and report the same to the Board. Public interest directors should ensure all regulatory communication/letter from the Board are placed before the governing board with comments/report of managing director.
(f) Public interest directors shall put in place an evaluation mechanism to assess the performance of managing directors on a continuing basis in line with evaluation guidelines for public interest directors.
(g) Public interest directors to ensure that appointments of managing director be held within specified timelines. Identification of key management personnel be closely scrutinized as per the laid down procedure and exceptions should be brought to the notice of the Board.
(h) Public interest directors should take proactive part in the deliberations of different committees and steer their functioning.
(i) Ensure adequacy of resource allocations (both financial & human) towards regulatory compliances to be ensured.
D. Applicable to Independent External Professionals
(a) Independent external professionals shall not use or act on any sensitive information received in capacity as a member of the statutory committee for obtaining any undue benefit.
E. Applicable to key management personnel:
(a) Managing director of the stock exchange or clearing corporation shall meet employees without the presence of other key management personnel (the heads of departments) to discuss important issues pertaining to stock exchange or clearing corporation.
(b) Key management personnel of the stock exchange and clearing corporation shall disclose on a periodic basis as determined by the stock exchange and clearing corporation (which could be monthly), all their dealings in securities, directly or indirectly, to the governing board or regulatory oversight committee or compliance officer of stock exchange and clearing corporation.
(c) All transactions must be of an investment nature and not speculative in nature. Towards this end, all securities purchased must be held for a minimum period of sixty days before they are sold. In specific or exceptional circumstances, however, sale can be effected anytime by obtaining preclearance from the compliance officer to waive this condition after recording in writing his satisfaction in this regard.
Explanation. – “securities” for the purpose of this code shall not include mutual fund units.”
ii. Part C shall be substituted with the following, namely,-
“PART C
[See Regulation 28(2)]
Core functions of recognised stock exchange and recognised clearing corporation
1. For recognised stock exchanges the core and critical functions shall include but not limited to:
a. Vertical 1: Critical operations
i. Provision and operation of trading facilities;
ii. Record keeping and disclosure of trade related information;
iii. IT infrastructure for core and critical functions;
iv. Business continuity plan and disaster recovery operations;
v. Cyber security and cyber resilience framework.
b. Vertical 2: Regulatory, compliance, risk management and investor grievances
i. Risk management;
ii. Surveillance and investigation;
iii. Listing;
iv. Member registration;
v. Compliance;
vi. Inspection;
vii. Enforcement;
viii. Arbitration and grievance redressal mechanism;
ix. Member default;
x. Investor protection and services.
c. Vertical 3: Other functions including business development
i. Sales;
ii. Marketing;
iii. Product development;
iv. Finance;
2. For recognised clearing corporation the core and critical functions shall include but not limited to:
a. Vertical 1: Critical operations
i. Provision for clearing and settlement;
ii. Record keeping of information related to clearing and settlement of trades;
iii. IT infrastructure for core and critical functions;
iv. Business continuity plan and disaster recovery operations;
v. Cyber security and cyber resilience framework.
b. Vertical 2: Regulatory, compliance, Risk Management and investor grievance
i. Risk management;
ii. Member registration;
iii. Compliance;
iv. Inspection;
v. Enforcement;
vi. Member default;
vii. Investor protection and services.
c. Vertical 3: Other functions including business development
i. Sales;
ii. Marketing;
iii. Product development;
iv. Finance.
iii. in Part-H,
(a) clause (I), sub-clause (2) shall be substituted with the following, namely,-
“(2) The recognised stock exchange or recognised clearing corporation shall forward the above details to the Board while recommending their names along with the minutes of the governing board meeting where their name(s) was approved, copy of the shareholders’ resolution (wherever applicable) and a confirmation by the recognised stock exchange or recognised clearing corporation that they are fit and proper persons in terms of the fit and proper criteria, are not associated with any trading member or clearing member in terms of regulation 23 (6) read with regulation 2 (1) (b) of these regulations and compliance with the requirements specified in regulation 23 (14).”
(b) in clause (III),
(a) sub-clause (1) shall be substituted with the following, namely,-
“(1) The names of the public interest directors shall be forwarded to the Board after the approval of the governing board of the recognised stock exchange or recognised clearing corporation. The shareholders’ approval shall not be necessary. A minimum of two names shall be submitted to the Board for each vacancy of public interest directors, two months before such vacancy.”
(b) in sub-clause (2), item (a) shall be substituted with the following, namely,-
“(a) Qualifications as specified in sub-regulation (14) of regulation 23.”
(c) in sub-clause (2), item (b) shall be omitted.
(d) sub-clause (3) may be substituted with the following, namely,-
“(3) Public interest directors shall peruse the relevant laws, code of conduct, etc. and submit an undertaking to the recognised stock exchange or recognised clearing corporation that they are aware of their role, responsibilities and obligations.”
(e) sub-clause (4), shall be substituted with the following, namely,-
“(4) In case of reappointment of the public interest director, the recognised stock exchange or recognised clearing corporation shall apply to the Board four months before the expiry of the term. In addition to the other requirements specified herein, the application for reappointment of the public interest director shall be accompanied with, their attendance details on meetings of various mandatory committees and on the governing board of the recognised stock exchange or recognised clearing corporation, performance review and the reasons for extension of term.”
(f) sub-clause (5) shall be substituted with the following, namely,-
“(5) The existing public interest director, may continue holding the post for a maximum period of three months from the date of expiry of their term or till a new public interest director is appointed, whichever is earlier, only if the governing board does not meet the mandatory regulatory requirements on its composition.”
(g) in clause (IV),
(a) in the heading, the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors.”
(b) in sub-clause (1), the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors”.
(c) sub-clause (2) shall be substituted with the following, namely,-
“(2) The manner of election, appointment, tenure, resignation, vacation, etc. of non-independent directors shall be governed by the provisions applicable to shareholder directors under the Companies Act, 2013 save as otherwise specifically provided under these Regulations or in accordance with the Act and circulars issued thereunder.”
(d) after Clause VI, the following clause shall be inserted, namely,-
“(VII) The recognised stock exchange and recognised clearing corporation shall provide at least seven days of training to all directors each year.”
iv. Part I, clause (1) shall be substituted with the following, namely,-
“(1) Regulation 27 of these regulations mandates that the compensation policy for key management personnel of recognised stock exchange or recognised clearing corporation shall be in accordance with the norms specified by the Board. The compensation norms, in this regard, shall be as follows:-
i. The variable pay component shall be within a range of 25% to 50% of total pay.
ii. 50% of the variable pay shall be paid on a deferred basis after a minimum period of three years.
iii. ESOPs and other equity linked instruments in the stock exchange/ clearing corporation shall not be offered or provided as part of the compensation for the key management personnel.
iv. The compensation policy shall have malus and clawback arrangements.”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./666/2022-23]
Footnote:
2. The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 were subsequently amended on–
