Sebi notifies new stock exch norms

Sebi notifies new stock exch norms

Sebi today notified new norms for ownership and governance of stock exchanges.

Market regulator Sebi today notified new norms for ownership and governance of stock exchanges and other market infrastructure institutions – a move which among others could pave way for setting up of new bourses and also permit the exchanges to get listed on other bourses.

As per the new norms,every recognised stock exchange shall have a minimum networth of Rs 100 crore at all times and at least 51 per cent of stake has to be held by public.

Besides,no Indian entity,either individually or together with persons acting in concert,would be allowed to acquire or hold more than 5 per cent stake directly or indirectly in a stock exchange.

However,stock exchanges,depositories,banks,insurance companies and public financial institutions from India can acquire or hold up to 15 per cent stake.


The new norms are expected to pave the way for setting up of new stock exchanges. Currently,there are two national level bourses,BSE and NSE,in the country,while the third one MCX-SX is waiting for permission to begin trade in the equity segment. MCX-SX is currently permitted only in the currency segment.

The individual shareholding would be capped at 5 per cent for all non-Indian entities without any exemptions,and their collective holding cannot exceed 49 per cent. Out of this,the holding through FDI route would be capped at 26 per cent and that through FII at 23 per cent. No FII would be allowed to acquire shares of a recognised stock exchange otherwise than through secondary market.

For a stock exchange that is not listed,an FII may acquire shares through transactions outside of a recognised stock exchange provided it is not an initial allotment of shares; and for listed bourses,the FIIs can transact through the exchange where the shares are listed.

Sebi also said that the existing regulations for Manner of Increasing and Maintaining Public Shareholding (MIMPS) in Recognised Stock Exchanges stand repealed after notification of new norms.

The shareholders having stake in excess of the new limits would have to comply with new norms within a period to be decided by Sebi and such period could be of up to three years.

For listing,Sebi said that a recognised stock exchange may apply for listing of its securities on any bourse other than itself and its associated stock exchange,provided they comply with the new regulations of ownership and governance,has completed three years of continuous trading operations and has got Sebis approval.

Also,the shares of a recognised stock exchange and a recognised clearing corporation would have to be in demat form,while clearing corporation cannot hold any right,stake or interest in an exchange.

Sebi further said that only those entities would be consider ‘fit and proper’ to set up or become shareholders or directors of stock exchanges who have “a general reputation and record of fairness and integrity.”

Also,such entities should not have incurred any of the disqualification like conviction by a court for any offence involving moral turpitude or any economic offence or any offence against the securities laws,among other conditions.

“If any question arises as to whether a person is a fit and proper person,the Board’s (Sebi’s) decision on such question shall be final,” it said.

Those exchanges having a lesser networth as on the date of commencement of these regulations,would have to achieve a minimum networth of Rs 100 crore within three years.

The applicants seeking recognition as a clearing corporation would also have to have a minimum networth of Rs 100 crore,but they would have to achieve a minimum networth of Rs 300 crore within a period of three years.

Sebi board had decided on April 2 to implement the ‘Ownership and Governance norms for Market Infrastructure Institutions’,after months-long discussions over proposals made by Bimal Jalan committee in this regard.

The committee had originally suggested against listing of the exchanges and had also suggested capping their profits.

Notifying the new norms,Sebi said that the new regulations would apply for “recognition,ownership and governance in stock exchanges and clearing corporations.”

Sebi further said it is separately in the process to specify norms for regulating the conflicts of interests in market infrastructure institutions,which would include norms for minimum listing standards,a Conflicts Resolution Committee,and an Expert Committee to examine certain issues relating to clearing corporations.

The Conflicts Resolution Committee (CRC) would be formed with majority external and independent members to deal with all issues concerning conflicts of interest.

“The CRC will consider matters of policy,guidelines involving conflict issues and recommend standards that are pertinent to the areas of potential conflict in the Exchanges,” Sebi said.

Further,it said issues of conflict will be referred by exchanges or may be taken up suo moto by the CRC.

Sebi also said it is issuing a circular for procedural aspects involved in implementing the new regulations,including compensation norms for key management personnel of stock exchanges and clearing corporations,statutory committees for clearing corporations etc.

The market regulator will also take up the matter with the government on the issue of categorisation of banks as ‘public’ shareholders.

“At the time of permitting trading in exchange traded currency derivatives,banks were permitted in consultation with RBI,to become trading members directly in the currency segment of the stock exchange,” Sebi said.

“In view of the implications with respect to the provisions of SCRA and decisions taken in the Board,SEBI is taking up the matter with the Government to appropriately amend the SCRA. Till such amendment or a period of three years,whichever is earlier,the current position will continue,” it added.

Also,the exchanges and clearing corporations would have to segregate their regulatory departments from other departments,as per Sebi regulations.

Among other rules,the bourses and clearing corporations cannot distribute profits in any manner to its shareholders until the networth criteria is met.

Also,their governing boards would have to include shareholder directors,public interest directors (PIDs) and a managing director,while chairman would have to be elected from among PIDs.

The number of PIDs cannot be less than the number of shareholder directors,while no trading member or clearing member,or their associates and agents,as also any FII,can be appointed on the board.

The board-related norms would need to be complied with within three months,while all board appointments,including that of MD,would need Sebi approval.

Also,an MD would have to be appointed for a minimum period of three years and a maximum of five years. Sebi can take suo-motu action to remove or terminate the appointment of MD,if deemed fit in the interest of the market.

While all directors and top management officials would have to abide by the Code of Ethics and Code of Conduct,any changes in compensation of MD would need Sebi approval.

The shareholding limits in all cases would include any instrument owned or controlled,directly or indirectly,that provides for entitlement to equity or rights over equity.

The new regulations follow an order by the Supreme Court on April 11,2012,wherein the apex court had directed Sebi to amend its Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations,2006 and examine the application filed by MCX-SX in light of the amended Regulations.

Sebi had filed a petition in the Supreme Court following the Bombay High Court Order which set aside a showcause notice to MCX-SX by Sebi and asked the regulator to reconsider MCX-SX’s application for other segments.

Sebi had asked for more time from the Supreme Court for considering MCX-SX’s application in order to amend the regulations and then process MCX-SX’s application in light of new regulations.

In clearing corporations,new rules call for at least 51 per cent to be held by one or more stock exchanges,but no exchange can acquire or hold more than 15 per cent in more than one clearing corporation.

Also,no resident Indian can acquire or hold more than 5 per cent in a recognised clearing corporation,while depository,banks,insurance companies and public financial institutions can acquire or hold up to 15 per cent.

No person resident outside India can acquire or hold more than 5 per cent and the combined holding of all non-residents cannot exceed 49 per cent. The combined holding of non-residents through FDI route would be capped at 26 per cent,while combined holding of FIIs can not exceed 23 per cent.


Those holding equity shares in excess of the prescribed limits would need to comply within 3 years.