CIRCULAR
CIR/MRD/DSA/14/2012 May 30, 2012
To,
The Managing
Directors / Chief Executive Officers/
Officiating Executive
Directors of all the Stock Exchanges.
Dear Sir / Madam,
Sub.: Exit Policy for De-recognized/
Non-operational Stock Exchanges
1.
SEBI vide circular dated December 29, 2008
issued guidelines in respect of exit option to stock exchanges. The exit policy
of aforesaid exchanges has been reviewed by the Board and the said Circular
stands revised/modified to the extent as under.
2.
Process of
De-recognition and Exit
2.1
Exchanges
may seek exit through voluntary surrender of recognition.
2.2
Stock exchanges where the annual trading
turnover on its own platform is less than Rs 1000 Crore can apply to SEBI for
voluntary surrender of recognition and exit, at any time before the expiry of
two years from the date of issuance of this Circular.
2.3
If the stock exchange is not able to achieve
the prescribed turnover of Rs 1000 Crores on continuous basis or does not apply
for voluntary surrender of recognition and exit before the expiry of two years
from the date of this
Circular,
SEBI shall proceed with compulsory de-recognition and exit of such stock
exchanges, in terms of the conditions as may be specified by
SEBI.
2.4
Stock Exchanges which are already
de-recognised as on date, shall make an application for exit within two months
from the date of this circular. Upon failure to do so, the de-recognized
exchange shall be subject to compulsory exit process.
3.
With regard to exit option to shareholders of
exclusively listed companies, on stock exchanges seeking de-recognition and/ or
exit and de-recognised stock exchanges, the following process should be
followed by the exclusively listed companies. Such an exchange shall monitor
the process given below until its exit:
3.1
Exclusively listed companies shall list on
any other recognized stock exchange.
Such other recognized stock exchanges may
facilitate the listing of exclusively listed companies, and, if required, carry
out changes to their listing eligibility criteria, in the interest of
investors. Stock exchanges may have differential listing criteria for such
exclusively listed companies in respect of following criteria viz, Market
Capitalization, Dividend paying track record, profitability, and paid-up
capital. In this regard, the stock exchanges shall issue the differential
listing eligibility criteria for such exclusively listed companies.
3.2
The exclusively listed companies, which fail
to obtain listing on any other stock exchange, will cease to be a listed
company and will be moved to the dissemination board by the exiting stock
exchange. Therefore, in the interest of investors of exclusively listed
companies, a mechanism of dissemination board will be set-up by stock exchanges
having nationwide trading terminals.
3.3
Dissemination
Board:
Under this mechanism, a willing buyer and
seller will be given an opportunity to disseminate their offers using the
services of brokers of stock exchanges hosting dissemination board. The
mechanism of dissemination board shall be given wide publicity for the benefit
of the investors of exclusively listed companies. Every stock exchange hosting
a dissemination board shall clearly bring out the guidelines in respect of the
Dissemination Board on its website.
Features
of Dissemination Board:
i.
Exiting Stock Exchanges will be required to
enter into an agreement with at least one of the stock exchanges with
nationwide trading terminals providing the Dissemination Board. The exiting
stock exchange shall pay a one-time fee for the arrangement as may be decided
in the agreement. The fee may be based on number of companies moving on to the
dissemination board, number of public shareholders in those companies, their
paid up capital etc.
ii.
Exchanges having nationwide trading terminal
will not have listing agreement with these companies. However, information
received from such companies will be disseminated.
iii.
The buyers/ sellers will be required to
register with broker of the exchange where the dissemination board is set up.
iv.
No
contract note is required to be issued for such transactions.
v.
The matched
trades will not be settled
through the stock
exchange/
Clearing Corporation mechanism and hence,
there will be no recourse to the Settlement/ Trade Guarantee Fund and Investor
Protection Fund of the Exchange for the trades on Dissemination Board
vi. The exiting Stock
Exchange as well as exchange providing dissemination board will give wide
publicity about the dissemination board in one leading national daily and one
local daily.
The
stock exchanges hosting dissemination board shall issue uniform operational
guidelines for the dissemination board.
4.
Members
of Stock Exchanges to continue trading through Subsidiary
4.1.
In case of de-recognition of a stock
exchange, the exchange may provide trading opportunity to their trading members
to trade on stock exchanges having nationwide terminals through their
subsidiary company, which will function as normal broking entity in terms of
SEBI circular dated December 29, 2008. In case of de-recognition, subsidiary
company shall continue to function as broking entities in compliance of, inter
alia, the provisions of the
SEBI
(Stock Brokers and Sub-Brokers) Regulations, 1992.
4.2.
In case of de-recognition, the MoU mechanism,
if any, between a stock exchange not having nationwide trading terminal and a
stock exchange having nationwide trading terminal, shall be discontinued and in
such cases the trading members of erstwhile stock exchanges will gain access to
exchanges having nationwide terminals through membership of the existing
subsidiary company.
5.
Treatment
of the Assets of de-recognized exchange
5.1.
De-recognized stock exchange (voluntarily
de-recognized or compulsorily de-recognized) is permitted to distribute its
assets subject to certain conditions as laid down in this circular, as well as
other guidelines that may be issued by SEBI, Government(s), or any other
statutory authority from time to time.
5.2.
For the purpose of valuation of the assets of
the stock exchange, a valuation agency shall be appointed by SEBI.
5.3.
The quantum of assets for distribution will
be available after payment of statutory dues including income tax, transfer of
funds as specified in para
6.1,
payment of dues as specified in para 6.2, refund of deposit (refundable) to the
stock brokers including their initial contribution/ deposit to Settlement
Guarantee Fund / Trade Guarantee Fund (SGF/ TGF), and contribution to SEBI as
specified in para 5.4. However, the remainder of
SGF/ TGF after refunding to stock broker as mentioned
above shall be considered for the purpose of valuation of the assets of the
exchange.
5.4.
In
case of de-recognition and exit, the stock exchange shall contribute upto
20% of its assets (after tax) towards SEBI
Investor Protection and Education Fund (IPEF) for investor protection and in
order to cover future liabilities, if any. The contribution may be decided by
SEBI taking into account, inter alia, the governance standards of the stock
exchange and estimation of future liabilities.
5.5.
All stock exchanges including de-recognised
stock exchanges shall not alienate any assets of the exchange without taking
prior approval of SEBI.
6.
Other
Conditions:
6.1.
The exchange shall transfer Investor
Protection Fund, Investor Services Fund, 1% security deposit available with
them to the SEBI IPEF. The 1% security deposit shall subsequently be returned
to the issuer company in due course on satisfying the prescribed conditions.
6.2.
The
exchange shall pay following dues to SEBI:
6.2.1.
The dues outstanding to SEBI including 10% of
the listing fee and the annual regulatory fee.
6.2.2.
The outstanding registration fees of
brokers/trading members of such de-recognised stock exchanges as specified in
the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 till the date of
such de-recognition.
6.2.2.1.
Dues of the brokers to SEBI shall be
recovered by the exchange out of the brokers’ deposits / capital / share of
sale proceeds / winding up proceeds / dividend payable, etc. available with the
exchange.
6.2.2.2.
The exchange will be liable to make good any
shortfall in collection of dues of the brokers to SEBI.
6.3.
In case the stock exchange, after
de-recognition, continues as a corporate entity under the Companies Act, 1956,
it shall not use the expression ‘stock exchange’ or any variant in its name or
in its subsidiaries name so as to avoid any representation of present or past
affiliation with the stock exchange. The subsidiaries of de-recognised stock
exchanges may continue to function as any other normal broking entity, managed
by its own board, with a suitable change of name so as to avoid any
representation of any present or past affiliation with the stock exchange.
6.4.
Sale/distribution/transfer of assets/winding
up of such exchanges/ companies shall be subject to the applicable laws in
force.
6.5.
The stock exchange shall set aside sufficient
funds in order to provide for settlement of any claims, pertaining to pending
arbitration cases, arbitration
awards, not implemented, if any,
liabilities/claims of contingent nature, if any, and unresolved investors
complaints/grievances lying with the exchange.
7. SEBI may allow
de-recognition and/ or exit to stock exchanges subject to additional conditions
as may be decided by SEBI in the interest of trade or in the public interest
including securities market.
8. In case of stock exchange
seeking exit, through voluntary surrender of recognition or after being
compulsorily de-recognized by SEBI, an appropriate order shall be passed by
SEBI.
9.
Applicability
This
circular shall apply to:
(i)
Recognized
stock exchanges
(ii)
Stock
exchanges that stand de-recognised as on date of this circular
(iii)
Stock exchanges that have applied for
derecognition/ exit as on the date of this circular
10. This
circular is issued in exercise of powers conferred under Section 11 (1) and
11(2) (j) of the Securities and Exchange Board of India Act, 1992, read with
Section 5 of the Securities Contracts (Regulation) Act, 1956, to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market.
11. This circular is
available on SEBI website at www.sebi.gov.in.
Yours faithfully,
Rajesh Kumar D
Deputy General Manager
Tel. No. 2644 9242
Email: rajeshkd@sebi.gov.in
Source: www.sebi.gov.in
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